Stocks, Bonds etc. -> Investing Tax Issues -> Flow-through shares
Tax Treatment of Income From Investments in Flow-Through Shares (FTSs)
Income Tax Act s. 66(12.6)-(12.75), 66.3(3)
This information is regarding investments which are held outside of RRSPs or other registered accounts.
Flow-through shares are considered to be a speculative investment. Before purchasing, make sure you are aware of how long you will have to hold them before you can sell (usually 2 years), amounts of sales commission, etc. 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.
When investors purchase shares or units of flow-through shares or flow-through LPs, they are generally able to deduct the entire cost of these shares against their taxable income over a period of 2 or more years. Eligible Canadian Exploration Expenses (CEE) and Canadian Development Expenses (CDE) are flowed through, or renounced, by the corporation to investors each year, and the investors can deduct these expenses from income. The shares in the flow-through entity are usually converted on a tax-deferred basis to mutual funds after two years. When these mutual funds are sold, generally the entire amount is taxed as a capital gain, because of the zero ACB, as indicated by CRA's Reporting Your Investments for flow-through shares.
Investors in flow-through shares may also benefit from investment tax credits provided by the federal government and some provincial governments.
Investors who invest in flow-through shares directly with a principal-business corporation (PBC) will receive a Form T101, Statement of Resource Expenses
Investors who invest in flow-through shares through a partnership or limited partnership will receive a T5013 tax slip to be used in filing their tax return. If the amounts on the T5013 are not in Cdn$, the currency used will be shown in box 205 of the T5013, and the amounts will have to be converted to Cdn$.
Canada Revenue Agency (CRA) Resources
How the flow-through share program works
Line 41200 (line 412 prior to 2019) - Investment tax credit
T5013-INST Statement of partnership income - Instructions for Recipient
T101 Statement of Resource Expenses
Tax Tip: Base your investment decision for flow-through shares on quality of investment as well as tax advantages.
Revised: October 26, 2023