Flow-Through Shares

A Lesser-Known Canadian Investment and Tax Strategy

Most investors are familiar with RRSPs, TFSAs and the tax advantages that come with them. Far fewer have heard of flow-through shares, even though Canada has used them for decades to help finance resource exploration.

Flow-through shares are most associated with Canada’s mining and mineral exploration industry, although they can also be used to finance certain renewable energy and conservation projects. At their core, they solve a simple problem: finding a new mine is expensive. Exploration companies can spend millions surveying land, drilling and evaluating deposits long before generating any revenue. That often leaves junior companies with significant tax deductions they cannot immediately use because they have little or no taxable income.

A flow-through share allows certain qualifying expenses to be transferred—or “flowed through”—to the investors providing the capital. Instead of the exploration company claiming those deductions, the investor can generally claim them on their own tax return. The company receives capital to fund exploration, while the investor receives both an investment and the associated tax benefits.[1]

Why does Canada allow this?

Canada has enormous mineral resources, but discovering what is underground is risky and capital intensive. A company can spend years exploring a property and ultimately find no economically viable deposit. With little revenue or cash flow, junior explorers also have limited access to traditional financing and depend heavily on equity investors.

Flow-through shares make raising that equity more attractive. Because investors value the accompanying tax deductions, companies can often raise capital on better terms than through an ordinary share issuance. In effect, the tax system transfers deductions from companies that may not be able to use them for years to investors who can use them today.[1]

The policy has taken on greater strategic importance in recent years. Canada introduced a larger credit for critical-mineral exploration in 2022 and expanded the eligible mineral list in 2026. At the same time, oil, natural gas and coal expenditures generally stopped qualifying under new flow-through agreements after March 31, 2023. This reflects a broader shift in federal policy toward critical minerals and away from subsidizing fossil-fuel exploration.[2][3]

What does the investor receive?

The main benefit is a deduction against taxable income. For someone in a higher tax bracket, that can substantially reduce the after-tax cost of the investment.

Investors may also qualify for additional credits. As of 2026, qualifying mineral exploration can receive a 15% federal Mineral Exploration Tax Credit, while designated critical-mineral exploration can instead qualify for a 30% Critical Mineral Exploration Tax Credit.[2] Some provinces provide additional incentives. Ontario, for example, offers a 5% refundable credit on qualifying exploration expenditures incurred in the province.[4]

This can make flow-through shares particularly useful in a high-income year—for example, after a large bonus, business sale or other taxable event. The actual benefit, however, varies with income, province, the type of exploration expenses and an investor’s broader tax situation. Alternative Minimum Tax can also affect the immediate benefit for some investors.[5]

The tax benefit comes with investment risk

A tax deduction lowers the cost of making an investment. It does not guarantee a profit even on an after-tax basis.

Many companies receiving flow-through capital are small exploration businesses. Their value can depend on drilling results, commodity prices, financing conditions, permitting and, ultimately, whether they discover anything valuable at all. An investor can receive a substantial tax benefit and still lose money. This is one of the reasons why investors in higher tax brackets can benefit most from flow-through shares, since they will receive relatively higher tax benefits and reduce the probability of losing money after considering tax benefits.

There are also future tax consequences. Flow-through shares generally have an adjusted cost base of zero, meaning much or all of the eventual sale proceeds can represent a capital gain for tax purposes.[6]

Investors do not necessarily have to select individual exploration companies themselves. Flow-through funds and limited partnerships can invest across a portfolio of companies, reducing single-company exposure. Diversification helps, but fees, liquidity, portfolio quality and the manager selecting the investments are still important.[7]

Where do flow-through shares fit?

Flow-through shares sit at an unusual intersection of investing and tax planning. For the right investor, they can reduce current taxes while providing exposure to, and helping benefit, Canada’s resource sector. For exploration companies, they provide capital at a stage when financing is difficult. For Canada, they use the tax system to encourage private investment into exploration rather than directly funding each project.

That does not make them appropriate for everyone. Their value depends on both the quality of the investment and the investor’s individual tax circumstances. That is ultimately what makes flow-through shares different from a simple tax deduction: the investment and the tax strategy have to make sense together.

Sources

[1] Natural Resources Canada, Tax Incentives for Mining and Exploration — Flow-Through Shares.

[2] Department of Finance Canada, 2026 Briefing Materials — Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit.

[3] Canada Revenue Agency, Income Tax Folio S3-F8-C1 — Principal-Business Corporations in the Resource Industries.

[4] Government of Ontario, Ontario Focused Flow-Through Share Tax Credit.

[5] Canada Revenue Agency, Form T691 — Alternative Minimum Tax.

[6] Canada Revenue Agency, Reporting Your Investments — Flow-Through Shares.

[7] Canada Revenue Agency, Types of Investments — Flow-Through Shares.

This publication is for informational purposes only and shall not be construed to constitute any form of advice. The views expressed are those of the author alone. Opinions expressed are as of the date of this publication and are subject to change without notice and information has been compiled from sources believed to be reliable. This publication has been prepared for general circulation and without regard to the individual financial circumstances and objectives of persons who receive it. You should not act or rely on the information without seeking the advice of the appropriate professional.

Aligned Capital Partners Inc. (“ACPI”) is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and Canadian Investment Regulatory Organization (“CIRO”). Investment services are provided through ACPI (or) Innova Wealth Management, (if applicable) an approved trade name of ACPI. Only investment-related products and services are offered through ACPI/Innova Wealth Management and covered by the CIPF. Financial planning and insurance services are provided through Innova Wealth Partners. Innova Wealth Partners is an independent company separate and distinct from ACPI/Innova Wealth Management.