The Opportunity
Flow-through shares offer huge tax benefits that are only available to qualified Canadians. Created by the Canadian government in 1972, these shares provide incentives for Canadians to invest in resource exploration and development (a backbone of the economy), and to promote economic activity and jobs in what are often remote communities.
The Drawback
Flow-through shares are typically issued by resource exploration companies with speculative future prospects, and their share prices can be extremely volatile. A loss can wipe out the entire value of the tax benefits and lead to an aggregate loss. Additionally, the shares are typically issued subject to a four-month restricted trading period leaving the purchaser exposed to share price volatility during that time. Alternatively, purchases of flow-through share limited partnership interests usually lock up the purchaser’s funds for a lot longer, frequently a year or more which again, leaves the investor exposed to price volatility.
The Solution
We offer a Flow-through share transaction structured as a bought deal, allowing accredited investors to capture the tax benefits without the associated market risk and illiquidity. Prior to the transaction taking place, we line up a liquidity provider that wants to keep the shares and will buy them at a pre-negotiated price – always at a discount to market. The participant knows the results in advance as both the buy and sell take place on the same day.
