Changing the Conversation
By Maurice Levesque
What are Flow-Through Shares?
Flow-through shares are common shares issued
by resource companies which provide flow-through
tax deductions to flow-through share investors,
which include individuals, corporations and limited
partnership (LP) investors. Resource companies issue
flow-through shares to attract capital to fund their
exploration and development activities in Canada and
then “flow through” their eligible Canadian Exploration
Expenses (CEE) and Canadian Development
Expenses (CDE) to their flow-through share investors.
Individuals, corporations and limited partnership
investors (Flow-Through Investors) may deduct CEE
and CDE expenses against taxable income.
Why Does the Government of Canada Provide a
Flow-Through Tax Deduction?
The Government of Canada recognizes the
economic benefits of the exploration and development
of Canada’s natural resources and encourages
investment by allowing CEE and CDE expenses to
be deducted by Flow-Through Investors. Originally,
What are the CEE and CDE
CEE Flow-Through Investors
may deduct 100% of their
investment in the year of the
investment. CDE Flow. Through
Investors earn a 100% deduction
which is deducted on an annual
30% declining balance basis
starting the year of the investment.
How Does a Typical Flow-Through Limited
1. Flow-Through Investors invest
in a flow-through LP.
2. The LP’s portfolio manager invests in flow-through shares issued by resource companies.
3. Resource companies “flow through” the
CEE and CDE expenses to the LP.
4. Resource companies use the LP’s capital
to incur CEE and/or CDE expenses.
5. The LP or the Flow-Through
Investor’s investment dealer issues
a T5013 tax slip to investors.
6. The LP’s investors use the T5013
information to claim their flow-through tax
deduction against their taxable income.
7. An LP typically provides liquidity to
investors through a tax-deferred rollover
of the LP’s assets to a mutual fund.
CEO & CCO
Fund Management Ltd.
Private Capital Markets
Association of Canada