Flow-through share

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Flow-through shares (FTS) are a Canadian tax incentive mainly used by mining and other resource companies to raise money for exploration. Here’s how they work in simple terms:

- A company issues new FTS to an investor and agrees to incur eligible exploration expenses up to the amount the investor pays for the shares.
- The company “renounces” those expenses to the investor, so the investor can deduct the exploration costs on their taxes as if they had spent the money themselves.
- This helps the issuer raise capital while giving the investor a tax deduction. It’s especially helpful for junior exploration firms that struggle to raise funds.

FTS basics and why they’re used:
- The shares must be newly issued and have the normal features of common shares.
- The mechanism transfers the exploration expenses to the investor, providing a tax benefit while the company gets funding.
- The program is commonly used by mining, oil and gas, and renewable energy projects.

FTS and charitable gifting:
- FTS can also be used for charitable gifting. Donors can donate FTS to a charity, which can lower the donor’s after-tax cost while the charity receives the gift immediately (net of fees).
- The Canada Revenue Agency (CRA) reviews all FTS arrangements and conducts audits to ensure compliance.

How the typical FTS process works:
- An investor subscribes to FTS, gaining access to Canadian Exploration Expenses (CEE) and related investment tax credits (ITCs).
- The shares are donated to the donor’s chosen charity.
- The charity sells the shares to institutional investors, enabling the donor to receive a donation receipt.

Providers:
- Four main providers offer this service in Canada: WCPD, PearTree Canada, Oberon Capital Corporation, and Ber Tov Capital.