Flow-through shares (FTSs)

Certain corporations in the mining, oil and gas, and renewable energy and energy conservation sectors may issue FTSs to help finance their exploration and project development activities.

The FTSs must be newly issued shares that have the attributes generally attached to common shares.

Junior resource corporations often have difficulty raising capital to finance their exploration and development activities. Moreover, many are in a non-taxable position and do not need to deduct their resource expenses.

The FTS mechanism allows the issuer corporation to transfer the resource expenses to the investor. A junior resource corporation, in particular, benefits greatly from FTS financing.

The FTS program provides tax incentives to investors who acquire FTSs by allowing: deductions for resource expenses renounced by eligible corporations; and investment tax credits for individuals (excluding trusts) on resource expenses in the mining sector that qualify as flow-through mining expenditures.

Flow-through share (FTS) [Ss. 66(15) Definitions] - a new share of capital stock of a principal-business corporation (PBC) that is not a prescribed share and that is issued to a person under a flow-through share agreement. An FTS includes the right of a person to have such a share issued. As such, a flow-through warrant (FTW) is considered an FTS.

Flow-through mining expenditure (FTME) [127(9) Definitions] - available at the rate of 15 per cent of qualifying expenditures to individual investors in respect of "grass roots" mining exploration expenses financed using flow-through shares. Grass roots exploration focuses on finding new resources, as opposed to delineating existing resources.

Flow-through share agreement [Ss. 66(12.6), 66(12.601), 66(12.62), and
66(15)] - a written agreement entered into between an investor (corporation, partnership, individual, or trust) and the principal-business corporation (PBC), under which the PBC agrees to incur Canadian exploration expenses (CEE) or Canadian development expenses (CDE), the total of which will not be less than the consideration paid to the corporation for the FTS, and to renounce to the investor amounts of CEE or CDE that are not more than the consideration. These qualifying expenditures must then be incurred within 24 months following the month in which the agreement was entered into.

The consideration to be received must either be stated in the agreement, or determinable within 60 days of the agreement date.

Flow-through warrant (FTW) - an option to acquire a flow-through share (FTS) which is a right to have such a share issued (other than a prescribed share). If consideration is received for the option, and the corporation agrees to incur eligible expenses and to renounce them, then the qualifying period starts on the agreement date for that consideration. When the option is exercised, the qualifying period for the exercise of the option starts on the date the option was exercised.

From TSE: Flow-Through Shares Financing

The dollar value of flow-through shares issued in accordance with a TSX or TSX Venture Exchange approved transaction.

The price is determined by the policies of the TSX Company Manual or TSX Venture Corporate Finance Manual; the price is not adjusted for the value of the flow-through tax benefit available to the security holder.

It can be an initial public offering (IPO), secondary offering, or private placement.

From Canada Revenue Agency:

Flow-through shares (FTSs)

Certain corporations in the mining, oil and gas, and renewable energy and energy conservation sectors may issue FTSs to help finance their exploration and project development activities.

The FTSs must be newly issued shares that have the attributes generally attached to common shares.

Junior resource corporations often have difficulty raising capital to finance their exploration and development activities. Moreover, many are in a non-taxable position and do not need to deduct their resource expenses.

The FTS mechanism allows the issuer corporation to transfer the resource expenses to the investor. A junior resource corporation, in particular, benefits greatly from FTS financing.

The FTS program provides tax incentives to investors who acquire FTSs by allowing: deductions for resource expenses renounced by eligible corporations; and investment tax credits for individuals (excluding trusts) on resource expenses in the mining sector that qualify as flow-through mining expenditures.