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Tax strategy for accredited investors, entrepreneurs and small business owners

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Frequently Asked Questions

A Flow Through Share is a common share issued by an eligible Canadian mining corporation to a Canadian taxpayer pursuant to an agreement under which the issuing corporation agrees to incur “qualifying exploration and/or development 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 the exploration and development expenses are considered for tax purposes to be expenses of the taxpayer. As a result of the corporations renouncing of the expenses, the shareholder can deduct the expenses as if incurred directly.
A Flow Through Share is a common share issued by an eligible Canadian mining corporation to a Canadian taxpayer pursuant to an agreement under which the issuing corporation agrees to incur “qualifying exploration and/or development 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 the exploration and development expenses are considered for tax purposes to be expenses of the taxpayer. As a result of the corporations renouncing of the expenses, the shareholder can deduct the expenses as if incurred directly.

The issuer of a Flow-through shares must be a Canadian based principal business corporation (PBC) which means that its principal business is mining or exploring for minerals for the purpose of recovering metals and/or minerals from the ground. The mine site MUST be in Canada.

Flow-through shares are the product of a Canadian Federal government tax policy that provides seed capital to mining companies, thereby giving them the ability to fund their efforts to explore for valuable resources. This policy also supports the mining industry with jobs that are often in remote areas of the country. Purchasers of  flow through shares receive a 100% tax deduction.

The only entity entitled to the tax benefits of flow through shares is the original subscriber (when these shares are purchased, the purchaser is known as the “subscriber”). The initial subscriber is entitled to receive the tax benefits of qualifying expenditures even if the shares are owned for a brief period of time.
Yes. The tax benefits associated with flow-through shares are well-accepted in Canada and have been in place through legislation since 1954. One reason the government provides for this incentive is the funds invested stay in Canada and are used to create genuine and valuable economic activity and growth within Canada’s mining and energy sector. The tax deductions and tax credits are only available to those people who pay Canadian taxes.
The adjusted cost base or “ACB” of a share is generally what you paid for it. However, with flow through shares, because of the tax benefits and write-offs received, you are deemed to have an adjusted cost base (ACB) of zero.

Capital Dividend Account (CDA): Definition and Tax Treatment

Since you have written off the entire cost of the flow through shares, the adjusted cost base or ACB is zero. That means when you sell the shares you must declare a capital gain, only half of which is taxable.

Since you have written off the entire cost of the flow through shares, the adjusted cost base or ACB is zero. That means when you sell the shares you must declare a capital gain, only half of which is taxable.

Once you purchase the flow-through shares and have taken the CEE deduction, you are relying on the company to spend the money appropriately and withing government guidelines. In addition, if the total sum of the invested capital is not spent on exploration within the allotted time (typically 24 months), you may be retroactively denied the CEE deduction. The funds cannot be spent by the corporation on overhead or administrative expenses.

The companies I work with do a significant amount of due diligence before committing to a dela to ensure the company has enough capital to cover its operating costs; we also obtain an indemnification from the issuing company in case they run afoul of their spending requirements.

You can carry back the deduction to the prior three years or carry forward for 20 years.

allows you to offset other capital gains against these losses, thereby reducing the tax you pay. The capital gains resulting from the sale of your investment can be offset against any unused capital losses you may have.

The answer is Yes! If one purchases $50,000 of Flow-through shares, they would get the applicable tax benefits. The investor could then donate the shares – or better yet, donate the cash proceeds of sale – to the charity.  In this example, if the purchase price is $50,000 and the sale price was $40,000, they would get a charitable donation receipt for $40k. This means a donor can make a gift to their charity of choice at a lower effective out-of-pocket cost.

CEE generally includes eligible expenses incurred by an Exploration Company during the exploratory phases for petroleum, natural gas or mineral resources.  100% of CEE renounced to an investor in a year may be deducted from income by the investor for the year.

CDE generally includes certain eligible costs of acquiring and preserving rights to a “Canadian resource property” having known mineral reserves, expenses incurred to bring a mineral into production in reasonable commercial quantities and post-production expenses incurred in sinking, excavating or extending a mine shaft, main haulage way or similar underground work.  CDE is generally deductible at a rate of 30% per year.  However, the Minister of Finance announced measures in 2018 to accelerate the deduction of certain CDE incurred after November 20, 2018 by an additional 15% to 45% per year.  The accelerated deduction will be phased out starting in 2023 and will be eliminated by 2028.

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