Flow-through shares
In Canada, companies in sectors like mining and resources can deduct exploration and development expenses. They are allowed to pass on the tax deductionTax deduction A cost that you can deduct from your income when you file your taxes. This lowers the tax that you owe. For example, if you contribute $5,000 to your RRSP, you can deduct $5,000 from your income when you file your taxes.+ read full definition to investors through a special type of common shareCommon share The most common type of stock you can buy. It represents ownership in a company and may give you the right to: – Elect directors and vote on some corporate matters. – Share in the company’s success through dividends and/or capital appreciation. – Share in any assets if the company winds up.+ read full definition called a flow-through shareFlow-through share A share typically issued by a mining, oil or gas company that allows income to flow through to investors or owners. This is often the main source of financing for junior mining companies. Gives investors a major tax break.+ read full definition. When you buy flow-through shares, your money is locked in for up to 2 years – you can’t get your money out for any reason.
Learn more about flow-through shares and their tax benefits from the Canada Revenue Agency.
Where to buy flow-through shares
You can buy flow-through shares from an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition firm or directly from the company that issues the shares. You can also buy them through limited partnerships or mutual funds, which offer a diversified portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition of shares with professional investment management.
Ask about fees
Before you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition, find out about fees. You may have to pay a sales commission to your adviser and fees charged by the portfolio managerPortfolio manager An investment professional who manages your investment portfolio. For example, they buy, sell and monitor investments that fit their clients’ goals and tolerance for risk.+ read full definition.
3 key risks
- Offered by new, small companies – These companies are often in the exploration stage and aren’t yet making a profit.
- Speculative investmentSpeculative investment A high-risk investment that you buy to profit from a change in price. In most cases, you do not buy these investments for income or dividends.+ read full definition – It can take years for a mining or resource company’s exploration work to pay off with a find – if it finds anything at all.
- Holding period – Flow-through shares have a holding period of up to 2 years. You can’t get your money out during this period, no matter how the company is doing or what you need the money for.
Flow-through shares also have similar risks to common shares. Learn more about these risks.
Warning
Flow-through shares lock in your money for up to 2 years. You can’t get your money out, no matter how the company is doing or what you need your money for.