A flow-through share (FTS) is a tax-based financing incentive that is available to, among others, the

mining Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...

sector. A FTS is a type of share issued by a corporation to a

taxpayer A taxpayer is a person or organization (such as a company) subject to pay a tax. Modern taxpayers may have an Taxpayer Identification Number, identification number, a reference number issued by a government to Citizenship, citizens or Company, f ...

, pursuant to an agreement with the corporation under which the issuing corporation agrees to incur eligible exploration expenses in an amount up to the consideration paid by the taxpayer for the shares. The corporation “renounces” to the taxpayer an amount in respect of the expenditures so that the exploration and development expenses are considered to be the taxpayer's expenses for tax purposes. As a result of the corporation renouncing the expenses, the

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

can deduct the expenses as if incurred directly. According to CR

CRA
“Certain corporations in the mining, oil and gas, and

renewable energy Renewable energy is energy that is collected from renewable resources that are naturally replenished on a human timescale. It includes sources such as sunlight, wind, the movement of water, and geothermal heat. Although most renewable energy ...

and

energy conservation Energy conservation is the effort to reduce wasteful energy consumption by using fewer energy services. This can be done by using energy more effectively (using less energy for continuous service) or changing one's behavior to use less service (f ...

sectors may issue FTSs to help finance their exploration and

project development Project management is the process of leading the work of a team to achieve all project goals within the given constraints. This information is usually described in project documentation, created at the beginning of the development process. Th ...

activities. The FTSs must be newly issued shares that have the attributes generally attached to common shares. “Junior resource corporations often have difficulty raising capital to finance their exploration and development activities. Moreover, many are in a non-taxable position and do not need to deduct their resource expenses. The FTS mechanism allows the issuer corporation to transfer the resource expenses to the

investor An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...

. A junior resource corporation, in particular, benefits greatly from FTS financing. “The FTS program provides

tax incentive A tax incentive is an aspect of a government's taxation policy designed to incentivize or encourage a particular economic activity by reducing tax payments. Tax incentives can have both positive and negative impacts on an economy. Among the posit ...

s to investors who acquire FTSs by allowing: • deductions for resource expenses renounced by eligible corporations; and • investment

tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "disc ...

s for individuals (excluding trusts) on resource expenses in the mining sector that qualify as flow-through mining expenditures. “The

Canada Revenue Agency The Canada Revenue Agency (CRA; ; ) is the revenue service of the Canadian federal government, and most provincial and territorial governments. The CRA collects taxes, administers tax law and policy, and delivers benefit programs and tax credit ...

(CRA) reviews all FTS arrangements. Audits are carried out to monitor the program.” When flow-through shares are donated, a lower after-tax cost of giving is achieved. The flow through donation financing structure helps senior Canadian philanthropists significantly reduce the after-tax cost of their charitable gifts while ensuring the charity chosen by the donor receives the full pledge amount immediately on closing and net of all fees and expenses. The process is involves the simultaneous subscription to flow through shares, thus accessing the Canadian Exploration Expense (CEE) and associated investment tax credit benefits, donation of the shares to the charity of the donors choice, and the sale by the charity of the shares to institutional investors which enables the original donor to receive a donation tax receipt. There are four main providers of this service in Canada includin
WCPDPearTree CanadaOberon Capital Corporation
an
Ber Tov Capital
This is a unique structure that mineral exploration firms in Canada frequently use and encourages charitable gifting.

References

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