Definition Flow through shares

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Flow through shares

Flow through shares are common shares of a mineral company (includes oil and gas) where the purchaser (typically a corporation or very large investor) will enter into a limited partnership with the issuer (the mineral company) which will allow (transfer to) the purchaser certain tax deductions.

Canadian mineral companies are able to issue flow through shares at a premium since investors are considered to be funding exploration and development costs and are therefore entitled to deduct these expenses from all other income.

The tax deductions available to flow through shares are:
1) 100% tax deductible over the life of the partnership
2) The flow through share must be held for a certain period typically four to 12 months
3) An agreement with the partnership covering all of the resource company's obligations to ensure the expenditures are made in accordance with the tax act.

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