What is a flow through share offering?
Flow-through shares are like any other common share issued by a company, except they also provide tax benefits to the purchaser. A flow-through share is available to mining, petroleum and certain types of renewable energy companies to facilitate financing their exploration and project development activities.
How risky are flow-through shares?
Are there risks? Once you purchase the flow-through shares and have taken the CEE deduction, you are relying on the company to spend the money correctly. If the total sum of the investment is not spent on exploration within the 24 months, you may be retroactively denied the CEE deduction.
How does a flow through share work?
Flow-through shares are a financing tool available to a Canadian resource company that allows it to issue new equity (shares) to investors at a higher price than it would receive for “normal” shares, thereby assisting it in raising money for exploration and development.
Who can issue flow-through shares?
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.
How do I invest in flow-through shares?
The flow-through shares can be purchased directly from a resource company, or from a limited partnership (LP). The LP then invests in resource companies, which provides the investor some diversification.
What is a flow through cost?
flow-through cost (no load insurance) net cost of insurance with no markup to cover an intermediary’s profit or expenses. An intermediary, such as a broker, sells an insurance product net; that is, there is no loading for his own cost of soliciting business or his profit margin.
How long do you have to hold flow-through shares?
2 years
Holding period – Flow-through shares have a holding period of up to 2 years. You can’t get your money out during this period, no matter how the company is doing or what you need the money for.
How do I invest in flow through shares?
What is a flow thru?
A flow-through (pass-through) entity is a legal business entity that passes all its income on to the owners or investors of the business. With flow-through entities, the income is taxed only at the owner’s individual tax rate for ordinary income: The business itself pays no corporate tax.
How long do you have to hold flow through shares?
What is CEE and CDE?
Canadian resource companies are permitted to fully deduct specific exploration and development expenses, known as Canadian Exploration Expense (CEE) and Canadian Development Expense (CDE).
What is Ontario flow through share tax credit?
The Ontario Focused Flow-Through Share (OFFTS) Tax Credit is intended to stimulate mineral exploration in Ontario and to improve access to capital for small mining exploration companies.
How are flow through shares work in Canada?
The basic principle behind flow-through shares, which are unique to the resource sector in Canada, is that a mining corporation willing to forego the tax benefit of certain CEE and CDE amounts that it incurs can “renounce” these expenditures to investors buying shares in the corporation in certain circumstances.
Can a person invest in flow through shares?
Anyone can invest in flow through shares, however, the corporation that issues the flow through shares must be a principal-business corporation (PBC). There needs to be a written flow through share agreement between the corporation selling the shares and the individual (or corporation) who is investing.
How does a flow through share agreement work?
There needs to be a written flow through share agreement between the corporation selling the shares and the individual (or corporation) who is investing. Once everything is set, the corporation’s eligible expenses will then ‘flow through’ to the original investors.
Who is eligible for a flow through share ( FTS )?
Individuals, trusts, corporations, and partnerships can invest in FTSs, but only the original investors can deduct the amounts renounced to them. The corporation that issues the FTS must be a principal-business corporation (PBC). There must be a written flow-through share agreement between the investor and the corporation.