FAQ

What is a flow-through share?

A share issued by a Canadian resource company that allows the company to renounce its eligible exploration expenses to the investor. The investor deducts those expenses against their own income as if they had incurred the expenses themselves.

What does "Same-day Flow-through" mean here?

The subscription and the sale settle in the same moment, at a price agreed in advance, before you commit. You are never exposed to share price fluctuation. This structured transaction is sometimes referred to as Same-day Flow-through.

Why is there no holding period?

Flow-through shares are generally acquired through a private placement under a prospectus exemption, most commonly the accredited investor exemption.

Although the shares carry a four-month-and-one-day restricted period, this does not necessarily require the original subscriber to hold them for that period. Under NI 45-102, an early resale is treated as a new distribution. That resale can nevertheless be completed immediately if it is made pursuant to an available exemption under NI 45-106, typically to another accredited investor.

In a properly structured transaction, the original subscriber sells the shares to the exempt-market institutional purchaser the same day at a pre-aranged price. The new purchaser then becomes the beneficial owner and assumes the price volatility and illiquidity risk associated with the shares. The restricted period remains attached to the shares and the original subscriber no longer has market risk exposure.

What am I actually out of pocket?

The difference between what you subscribe for and the agreed sale proceeds, plus the fee, is your net out-of-pocket cost. The fee is always shown in the cash flow you approve before closing. Your deduction is the full subscription amount and individuals may also receive an investment tax credit of an additional 15% or 30% if exploration is for critical minerals.

Does the sale create a capital gain?

Yes. The adjusted cost base of flow-through shares is generally deemed to be nil once the related resource-expense deduction is claimed. As a result, the proceeds received on sale create a capital gain.

Put simply: you paid for the shares, but the tax deduction reduces their adjusted cost base (ACB) to zero. When the shares are sold, 100% of the sale proceeds are treated as a capital gain.

That capital gain is included in the calculations in every worked example on this site. It is a planned part of the transaction, not a surprise at the end.

How long does the transaction take?

Once a deal is announced I will send an actual cash-flow with the specifics of your transaction.

You have a day or two to confirm you're participating.

Your funds go into the WCPD trust account 2 to 3 days before closing. Funds must come from the bank account of whoever is participating, whether you personally or your corporation. You can wire the funds, send a certified cheque or bank draft by Canada Post or courier, or deposit directly. I'll provide the details when the time comes.

On closing day, the buy and the sell happen within minutes of each other.

Your funds (net proceeds of sale minus the fee) are sent back right away. Depending on the day and time, a cheque can take up to 3 days to reach you.

When in the year should I do this?

Deal flow can be somewhat unpredictable. Most people don't really think about their tax burden until the end of Q3 and into Q4 when demand seriously ramps up.

When demand is relatively lower earlier in the year, deals can have marginally better metrics and there is always the risk of not getting an allocation before the year end. We have closed deals on December 31 but there have also been clients who waited until the last minute and didn't get filled. The bottom line is, don't wait until it's too late.

Is this legal?

The structure rests on specific provisions of the Income Tax Act. CRA has issued advance income tax rulings on the donation version, most recently 2012-0466731R3. They have effectively stopped making rulings becasue the fact pattern is always the same so no need to opine again and again. The Department of Finance also addressed the sale of flow-through shares in its November 2023 GAAR explanatory notes, treating it as consistent with the purpose of the rules. This and more technical detail can be found on the For accountants page.

Will the CRA challenge it?

The relevant rulings and the Department of Finance commentary are public. Nothing on this site is a guarantee of tax outcome, and your own filing position should be confirmed with your accountant and/or tax advisor. Get in touch If they want to review the statutory basis before you proceed.

What is the real risk and how can it be mitigated?

Known as "issuer risk", meaning the mining company raising the money must spend the proceeds on eligible exploration expenses, generally by December 31 of the year after the shares are issued. If it runs afoul of these rules, the tax benefits can be reduced or denied in whole or in part.

Here's how we deal with that:

Before a transaction is made available, WCPD, the registered firm responsible for the offering, conducts significant due diligence, reviewing the issuer's financial position to confirm it can complete its exploration responsibiities on time. In addition, the transaction documents include an indemnity in which the issuer indemnifies subscribers if its own conduct causes the tax benefits to be disallowed.

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Are you paid by the issuer?

No. No person or company affiliated with me receives any compensation from the issuer of the flow-through shares or from the underwriter of the transaction. I'm an independent referring agent. Transactions are completed through WCPD, a registered exempt market dealer, and any referral compensation is fuilly disclosed in the docummentation.

Does the alternative minimum tax (AMT) affect this?

It can, depending on several factors including the type of income (T4 or ordinary income, eligible and non-eligible dividends, and capital gains) and any other contemplated deductions such as an RRSP deposit or charitable donations. While we can help with optimization that avoids AMT, it's imperative to confirm the AMT calculation with your own accountant.

Who is this for?

Canadians and CCPC owners paying tax at or near the top marginal rate on employment, investment or business income, who also qualify as accredited investors.

Do I need to be an accredited investor?

Yes. These are exempt market transactions that require qualifying as an accredited investor.

An individual whose net income before taxes exceeded $200,000 in both of the last two years and who expects to maintain at least the same level of income this year or

An individual whose net income before taxes, combined with that of a spouse, exceeded $300,000 in both of the last two years and who expects to maintain at least the same level of income this year or

For CCPCs, the shareholder(s) must qualify as accredited investors.

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Is there a minimum?

Based on income at the top marginal rate, $40,000 is the minimum amount to move the needle.

I own a CCPC. How does this apply to me?

Shareholders of Canadian-controlled private corporations face high combined corporate and personal rates on distributed profits. The structure gives shareholders a way to access corporate funds at a lower cost. If your operating company income doesn't exceed the small business threshold this isn't for you.

Should I personally do the transaction or through my corporation?

That depends on where the income sits and what you and/or your accountant are trying to solve. It's probably the first thing I would want to discuss with them.

How much does this actually save me on a donation?

Structured correctly, the transaction can cut the net out-of-pocket cost of a donation roughly in half. Or, with the same out-of-pocket amount, deliver a substantially larger gift. In this scenario, two structured flow-through transactions run side by side; one for the donation and a second one for cash-back. As you might deduce, the more capital used for the cash-back leg, the lower the net cost of giving a dollar.

Does the charity have to do anything differently?

No. It will either receive shares which are then immediately sold to for cash or an outright cash gift. Either way, the charity ends up with a cash donation.

Is there a minimum donation size?

The arithmetic can work from roughly $10,000 and up. Below that, the documentation effort outweighs the benefit - but get in touch anyway and we may be able to help.

Do I have to commit to anything to talk to you?

No. I only get paid if/when a transaction takes place. If you want to hop on a call, it's worth thirty minutes of your time. There's no cost, no obligation and nothing to sign.

Can you speak to my accountant first?

Yes, that's often the fastest route. Send them a link to this website and if they're interested, I can take it from there. And if they're not interested, I'd like to understand why.

What happens on a first call?

Most of the time people who call have very little understanding of flow-through shares, and if they are at all familiar they typically don't know about our structured bought deal. Even professionals such as investment advisors often don't understand the math, even though they might have sold the limited partnership version in the past.

All of that is to say that a typical first call has me going through the basics: how the numbers work, and dealing with a few of the objections I hear most often. How come I didn't know about this. Why does the government allow this. And of course, it sounds too good to be true. After the call I follow up with one or more emails based on the conversation and the questions asked.

What is a flow-through share?

What does "bought deal" mean here?

Why is there no holding period?

Flow-through shares are generally acquired through a private placement under a prospectus exemption, most commonly the accredited investor exemption.

In a properly structured transaction, the original subscriber sells the shares to the exempt-market purchaser on the same day. The purchaser becomes the beneficial owner and assumes the price and volatility risk associated with the shares. The restricted period remains attached to the shares, but the original subscriber does not retain that market exposure.

What am I actually out of pocket?

The difference between what you subscribe for and the agreed sale proceeds, plus a fee, is your net out-of-pocket cost. The fee is always shown in the cash flow you approve before closing. Your deduction is the full subscription amount, and individuals may also receive an investment tax credit.

Does the sale create a capital gain?

Put simply: you paid for the shares, but the tax deduction reduces their adjusted cost base to zero. When the shares are sold, 100% of the sale proceeds are treated as a capital gain.

That capital gain is included in the calculations in every worked example on this site. It is a planned part of the transaction, not a surprise at the end.

How long does the transaction take?

[COPY UNDER REVISION]

Once a deal is announced, closing is usually 10 days to 2 weeks away. Here's how it runs:

- I send you a cash flow with the real numbers for that deal.

- You have 2 to 3 days to confirm you're participating.

- Your funds go into the WCPD trust account, ideally 2 to 3 days before closing. They must come from the bank account of whoever is participating, you personally or your corporation. You can send a cheque or bank draft by Canada Post or courier, or deposit directly. I'll give you the details.

- On closing day, the buy and the sell happen within minutes of each other.

- Your funds are sent back right away. Depending on the day and time, a cheque can take up to 3 days to reach you.

When in the year should I do this?

Deal flow can be somewhat unpredictable. Most people don't really think about their tax burden until the end of Q3 and into Q4 when demand seriously ramps up.

When demand is relatively lower earlier in the year, deals can have marginally better metrics but there is always the risk of not getting an allocation before the year end. We have closed deals on December 31 but there have also been clients who waited until the last minute and didn't get filled. The bottom line is, don't wait until it's too late.

Who is this for?

Canadians paying tax at or near the top marginal rate on employment, investment or business income, who qualify as accredited investors.

Do I need to be an accredited investor?

Yes. These are exempt market transactions that require qualifying as an accredited investor.

Is there a minimum?

Based on income at the top marginal rate, $25,000 is the minimum amount to move the needle.

I own a CCPC. How does this apply to me?

Should the corporation or I personally do the transaction?

That depends on where the income sits and what your accountant is trying to solve. It is the first thing I would want to work through with them.

How much does this actually save me on a donation?

Structured correctly, the transaction can cut the net out-of-pocket cost of a donation roughly in half. Or, with the same out-of-pocket amount, deliver a substantially larger gift.

Does the charity have to do anything differently?

No. It receives a cash gift and issues a receipt in the ordinary way.

Is there a minimum donation size?

The arithmetic can work from roughly $10,000 and up. Below that, the documentation effort outweighs the benefit.

Is this legal?

The structure rests on specific provisions of the Income Tax Act. CRA has issued advance income tax rulings on the donation version, most recently 2012-0466731R3. The Department of Finance also addressed the sale of flow-through shares in its November 2023 GAAR explanatory notes (Example 4), treating it as consistent with the purpose of the rules. The technical detail is on the For Accountants page.

Will the CRA challenge it?

The relevant rulings and the Department of Finance commentary are public. Nothing on this site is a guarantee of tax outcome, and your own filing position is to be confirmed with your accountant. If they want to review the statutory basis before you proceed, that is the correct order to do it in.

What is the real risk?

Issuer risk. The company raising the money must spend the proceeds on eligible exploration, generally by December 31 of the year after the shares are issued. If it doesn't, the tax benefits can be reduced or denied in whole or in part.

What do you do about that risk?

Before a transaction is made available, WCPD, the registered firm responsible for the offering, reviews the issuer's financial position to confirm it can complete its exploration program on time. In addition, the transaction documents include an indemnity in which the issuer indemnifies subscribers if its own conduct causes the tax benefits to be disallowed.

Are you paid by the issuer?

No. No person or company affiliated with me receives any compensation from the issuer of the flow-through shares or from the underwriter of the transaction. I'm an independent referring agent. Transactions are completed through a registered exempt market dealer, and any referral compensation is disclosed by that dealer.

Does the alternative minimum tax (AMT) affect this?

Do I have to commit to anything to talk to you?

No. Start with the Primer. If you do want to hop on a call, it's worth thirty minutes of your time. There's no cost, no obligation and nothing to sign.

Can you speak to my accountant first?

Yes, that's often the fastest route. Send them the For Accountants page and if they're interested, I can take it from there. And if they're not interested, I'd like to understand why.

What happens on a first call?

The questions
I get asked most.

Ask a question, or book a meeting.

The questions I get asked most.

Ask a question, or book a meeting.

The questions
I get asked most.