PDAC 2016: Whither the flow-through share?

March 8, 2016

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Like several Canadian law firms, Stikeman Elliott LLP holds a variety of seminars on mining law during the PDAC convention.

Stikeman’s collection of rapid-fire, “7-minute mining” seminars on Monday morning included a brief presentation on the status of flow-through shares.

A company ordinarily writes off its own business expenses. Junior exploration companies are risky ventures that are likely years away from making enough money to incur corporate income tax liabilities. Flow through shares allow companies to “renounce” their business expenses to investors, who can then claim their share of those expenses as credits on their personal income taxes. You can debate their merit from an investor prospective, but they have raised hundreds of millions for Canadian exploration companies.

Canada’s new Liberal federal government has pledged to reduce subsidies available to the fossil fuel sector. The phase out will likely begin in the fiscal year ending 2018.  While the new federal government has indicated that it will continue to allow flow-through shares in the mining industry, it’s not yet clear how the new government’s policies will work in practice. We’ll get a first look when the new federal government unveils its first budget on March 22.

In the interim, Stikeman lawyers recommend that any company contemplating a flow-through share offering do so as soon as possible, just in case the rules change.

Category: General