What are Flow-Through Shares?

Flow-Through shares are one of the few remaining tax-assisted investment vehicles available to investors in Canada. Since the introduction of the tax system in 1954, the Canadian government has been working on additional ways to encourage exploration and development in the resource sector. In the 1993 Federal budget, the government allowed certain investors to deduct exploration expense against income.

Flow-through shares do not exist to circumvent any tax rules or to take advantage of any loopholes in the Tax Act. These flow-through shares benefit from certain provisions within the Tax Act that were explicitly created by government, as mentioned above.

The flow-through share investment allows investors with higher marginal tax rates to reduce their income through the receipt of tax credits. However, the suitability of each investment must be considered in the context of the client's risk tolerance and investment objectives.

A flow-through share is simply a common share of an oil and gas company. The name "flow-through" is attached because the resource company enters into an agreement with the shareholder to ‘flow through’ to the shareholder the tax credits the resource company has created from exploration. These are tax deductions that are generated from the company's capital expenditure programs (CEE - Canadian Exploration Expense).

Typically, a flow-through share has the following characteristics:

  • Up to 100% tax deductible;
  • Typically, a flow-through share distribution is conducted as a private placement, which are only eligible for "accredited investors" and subject to re-sale restrictions for a period of at least four months;
  • An agreement that covers the resource company's obligations to ensure the expenditures are made in accordance with the Canadian Income Tax Act.

Initial Public Offerings (IPO), Secondary Issues, Private Placements

Haywood Securities raises funds for companies that are looking to list on the TSX and TSX Venture exchanges as well as assisting companies looking to raise funds who are currently exchange listed. Haywood Securities also raise funds on a Private Placement basis for Accredited Investors*.

*To qualify as an Accredited Investors you must meet the definition of an Accredited Investor under the applicable Securities Act.

Tax Free Savings Account

In 2009 the Federal Government introduced the new Tax Free Savings Account.(TFSA)

A TFSA is your own personal tax shelter and is recognized under the Income Tax Act.

Your savings grow within the plan free of any tax on interest, dividends and capital gains. A TFSA is more than just a tax deferral investment because your money is not taxed when it is withdrawn from the plan. You are free to take out part or all of your money at any time, for any reason.

The plan is very flexible. You are entitled to contribute $5,500 to the plan each year. If you miss a year, not to worry because you are allowed to carry forward unused contributions indefinitely. It is however recommended that you contribute each year, preferably early on in the year so as to benefit from the power of compounding growth. The advantage of compound growth on a tax free basis can be significant.

The TFSA offered to you by Haywood Securities is particularly flexible because it enables you to invest in the shares of public companies if you choose to do so. Again, the capital gains that you realize within the plan will be tax free.

If you would like to set up your Tax Free Savings Account or have any questions relating to this valuable financial tool please contact me directly.

Robert Bryce

Investment Advisor / VP - Haywood Securities Inc.
Suite 2910, 181 Bay Street
Toronto, ON
M5J 2T3

Telephone: (416) 507-2733 
Toll free: (866) 615-2225