So…you may be asking: what are flow-through shares? Well, as defined on the Government of Canada website, Flow-Through Shares (FTSs) are shares that certain corporations in the mining, oil, gas, and renewable energy sectors may issue to help finance their exploration and project development activities.
The purpose of FTSs is to provide a form of incentive for investors. Specifically, for the purpose of:
- 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.
WHAT ARE THE PROS?
Firstly, as mentioned above, FTSs are used as a form of incentive, meaning that it’s a tax-sheltered investment opportunity given by the government. As we all know, there are few tax-sheltered investment opportunities, this is definitely an opportunity you can take advantage of!
The other favorable factor is that it can be beneficial if you are in a high tax bracket. Investing in flow-through shares can be a way to dodge paying a large tax amount.
Finally, the last advantage is that you can help stimulate the Canadian economy and earn money simultaneously. It’s like killing two birds with one stone.
WHAT ARE THE CONS?
Flow-through shares are usually issued at a premium of 20-30%, and that is because investors are paying the company for renouncing their tax benefits to them. This means that they can be quite costly. But, with the high costs, you will be saving money through the tax-sheltered opportunity.
FTSs are usually issued by smaller mining companies, meaning there is a higher investment risk for the investor. So be sure to talk to your financial advisor for their recommendations, as well as details on the risks associated with FTSs. If you don’t have a financial advisor, maybe it’s a good time to start looking for one!
Finally, FTSs are considered common shares, but you can’t buy and sell them like regular stocks. To do so, you would have to find an FTS provider, which you can find online. Need more financial advice? Follow me on Instagram for more financial videos!