Flow-through and super flow-through shares have been gaining popularity in Canada’s mining sector, and for good reason.
There’s much to be gained by taking advantage of the tax incentives provided by these share models, particularly in mining-friendly jurisdictions like Quebec. ASX-listed companies with projects in Canada have found these tax measures especially beneficial.
The bottom line is that both mining companies and investors can benefit financially from flow-through and super flow-through shares — but to understand why, one must first understand what these tax measures are.
Any money investors make on selling their flow-through shares is considered a capital gain and taxed accordingly. For tax purposes, flow-through shares are treated as having a base cost of zero. Shares must also be held for a certain amount of time before they can be sold.
For mining companies, flow-through shares offer a compelling additional source of funding for exploration and development. At the same time, they also reduce a company’s overall financing cost, enhancing viability. Moreover, because these shares are generally earmarked for a specific purpose, their sale does not dilute the ownership stake of a company’s existing shareholders.
These factors together make flow-through shares particularly attractive for Australian critical minerals companies seeking to either gain a foothold in the Canadian market or mitigate the costs of a high-capital Canadian project, as they do not have access to any equivalent domestic fundraising methods.
To issue a flow-through share, a company must be a corporation whose core business involves mining and exploration, processing, mineral recovery or metal fabrication. The project for which the shares are issued must be a mineral resource property, and it must be located in Canada. Beyond these requirements, the issuance process for flow-through shares is much the same as that for any common stock, with a few caveats.
The Canadian Exploration Credit (CEE) provides an investor with a 100 percent deduction in the year of purchase. The Canadian Development Credit (CDE), meanwhile, allows the investor to write off their deduction over a period of three years. The premium for shares issued through the CEE typically ranges from 20 to 30 percent, while the premium for shares issued through the CDE is usually between 8 and 15 percent.
This tax credit is only available in certain provinces — specifically British Columbia, Saskatchewan, Manitoba and Ontario. Quebec also offers its own type of super flow-through share which deducts from income rather than taxes owing. In Quebec’s case, an investor is able to deduct 10 percent of the expenditures associated with the CEE and an additional 10 percent if the company is engaged in aboveground exploration.
Helmed by an experienced board and management team, the company maintains several battery metals projects. The first, Horden Lake, consists of an advanced copper, nickel and platinum-group metals deposit currently in late-stage development. It also holds multiple high-potential early stage exploration projects in the Belleterre-Angliers greenstone belt.
Flow-through shares and super flow-through shares are incredibly beneficial not just from a tax and investment perspective, but also from an exploration and development perspective. Australian mining companies have a great deal to gain from establishing projects in regions with tax-friendly policies, such as Quebec, as does anyone who chooses to invest in those projects.
This INNSpired article was written according to INN editorial standards to educate investors.
INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.
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