Flow-Through Shares and Tax Credits

Here’s a visual breakdown of how a typical flow-through share investment works in Canada. The chart shows an investor putting in $10,000, receiving up to $7,500 in tax savings and $2,500 retained in the investment, illustrating how significant the tax benefit can be.

What Are Flow-Through Shares?

Flow-through shares (often abbreviated as FTS) are a uniquely Canadian investment vehicle primarily used by corporations in the mining, oil and gas, renewable energy, and energy conservation sectors. When a company issues flow-through shares, it agrees to incur qualifying exploration or development expenses and renounce those expenses to investors. The investors can then deduct these expenses as if they have incurred them themselves.

To qualify, the issuing company must be a principal-business corporation (PBC), and there must be a written agreement, commonly referred to as a subscription agreement, between the company and the investor detailing the commitment to incur and renounce eligible expenses.

Tax Advantages for Investors

1. Immediate Income Tax Deduction

Investors enjoy powerful deductions for Canadian Exploration Expenses (CEE), which are 100% deductible in the year renounced, and Canadian Development Expenses (CDE), often deductible on a declining balance basis (around 30%).

2. Investment Tax Credits (ITCs)

Individuals (excluding trusts) may also qualify for a 15% federal ITC on certain flow-through mining CEE amounts. (Government of Canada)

3. Provincial Tax Credits

Some provinces offer additional incentives. For example, Ontario provides a 5% refundable tax credit for investments in eligible flow-through shares linked to mineral exploration.

4. Risk Cushion via Tax Benefits

Because of deep deductions and credits, investors, especially those in high tax brackets, can sustain significant investment losses and still break even. In Ontario, with combined federal and provincial benefits reaching 53.53%, the net cost of a $10,000 investment after tax relief can be as low as $2,159. In other words, investors can lose up to 70–75% of the investment and still not incur a net loss. (Luc Dube)

5. Macro Support from the Federal Government

In March 2025, Canada extended its mineral exploration tax credit for two additional years, ensuring continued access to a 15% tax credit for investments in flow-through shares of smaller mining companies. This measure is expected to inject C$110 million to support exploration activity.

While the capital gains tax increase in 2024 raised concerns, since flow-through shares produce capital gains that might now be taxed at a higher inclusion rate, the outstanding FTS issuance remained strong. In 2023–2024, investors continued supporting junior mining ventures heavily via FTS, which accounted for more than 65% of exploration financing on TSX Venture Exchange.

Is Flow-Through Shares Right for You?

Ideal for:

• Individuals in high tax brackets looking to offset income.
• Investors experienced in resource sectors with high risk tolerance.
• Those outside TFSA or RRSP accounts, since FTS benefits apply only in non-registered investments.

Key risks and considerations:

• High volatility: Sectors like junior mining can be speculative.
• Liquidity constraints: FTS often come with a 2-year holding period, limiting access to funds.
• Tax documentation: You will receive a T101 slip (direct investment) or T5013 (via partnership), and you must file accordingly.
• Qualifying investments only: Ensure the company truly meets FTS requirements and that the subscription agreement is properly drafted.

Flow-Through Shares in the Canadian Landscape of 2025

• Continued government backing: Extension of the mineral exploration credit shows sustained federal support.
• Tax strategy remains compelling: Especially for high-income individuals, even amid capital gains tax concerns.
• Strong issuance numbers: Even with headwinds, flow-through shares continue to fuel exploration financing in Canada.

Avantis AI Use Case in Flow-Through Share Research

When evaluating flow-through share opportunities, staying abreast of corporate filing details, regulatory updates, and sector shifts can be daunting. This is where Avantis AI comes into play:

• Provides real-time access to SEDAR+ filings such as prospectuses, MD&As, and financial statements, which are essential to assess whether a corporation truly qualifies as a PBC and meets FTS requirements.
• Offers AI-powered document analysis, cutting through manual noise and surfacing insights like renounced expense levels, corporate strategy, and exploration plans.
• Enables alerting and monitoring, so investors and analysts can stay ahead of material disclosures or changes, such as new provincial credits or issuance trends.
• Supports due diligence and competitive intelligence with AI extraction across filings, helping spot emerging opportunities or protocol deviations early in the FTS lifecycle.

By leveraging Avantis, professionals can streamline evaluation of flow-through share issuers, mitigate compliance risk, and uncover their strategic edge in the fast-moving resource exploration space. Flow-through shares continue to be one of Canada’s most potent tax-based incentives for channeling capital into resource exploration. Investors stand to gain greatly via tax deductions, credits, and a naturally built-in downside cushion. With the government's ongoing support through extended tax credits, and despite macro challenges like capital gains reform, FTS remain a vital tool in 2025. That said, due diligence is critical, particularly around issuer eligibility, provincial rules, and documentation. Tools like Avantis AI offer a modern solution, helping investors and advisors navigate filings, regulatory updates, and corporate disclosures efficiently.

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