Flow-through shares are shares sold by a Canadian principal-business corporation that agrees to spend the proceeds on eligible exploration or development costs. It then renounces the related tax deductions to the investor. Individual investors in mining flow-through shares may also claim the 15% Mineral Exploration Tax Credit or 30% Critical Mineral Exploration Tax Credit.
For a junior exploration company, flow through shares are often the cheapest equity available. Investors will often pay a premium over the market price because the tax benefits come with the share. The issuer gets more money per share. In return, it gives up deductions it usually could not use anyway. Most exploration companies have no taxable income to shelter in the early years.
This guide is for issuers and their advisers. It covers who can issue, how renunciation works and the timing traps that cause most problems. It then sets out where the federal credits stand as of October 1, 2026, and how investors are taxed. Finally, it covers the Ontario securities rules and what to get right in the flow-through share agreement. For the broader planning picture, see our corporate tax lawyers page.
What Are Flow Through Shares in Canada?
A flow-through share is not a special class of share. It is usually an ordinary common share. What makes it different is the written agreement under which it is issued. In that agreement, the corporation agrees to incur certain expenses and renounce them to the subscriber. Flow through shares in Canada are governed mainly by the Income Tax Act. The defined term "flow-through share" in subsection 66(15) of the Income Tax Act does the work. The share qualifies because of that agreement, not because of anything in its share terms.
The mechanism is simple in outline. The investor pays cash for the shares. The corporation spends that cash on qualifying exploration or development work. The corporation then renounces the expenses. The deductions are treated as the investor's, not the corporation's, and the investor claims them against other income. The Canada Revenue Agency's flow-through shares glossary defines the key terms in plain language.
Both sides give something up. The issuer loses deductions it would otherwise carry forward. The investor gets a share with a deemed cost of zero. Part of the tax saved up front comes back as a capital gain when the share is sold, as explained below.
Who Can Issue Flow-Through Shares and for What Expenses
Only a "principal-business corporation" can issue flow-through shares. Under subsection 66(15), that means a corporation whose principal business is, broadly, mining or exploring for minerals. Processing mineral ores and certain other resource and energy activities also count. A holding company or a services business cannot use the regime, even if it has resource assets somewhere in its corporate group.
The expenses that can be renounced fall into three groups:
- Canadian exploration expense (CEE), defined in subsection 66.1(6) of the Act. For mining, this is work done to find a mineral resource in Canada and measure its extent and quality. Examples include prospecting, surveys, drilling and trenching.
- Canadian development expense (CDE), which covers later-stage costs such as bringing a mine into production. CDE is deducted more slowly than CEE, so most flow-through financings focus on CEE.
- Certain clean energy expenses. The Act also allows some renewable energy and energy conservation costs, known as Canadian renewable and conservation expense, to be renounced. Which project classes qualify is technical, and an issuer should confirm eligibility against the Act before marketing a clean energy flow-through offering. Our guide to the clean electricity investment tax credit covers a related federal incentive.
Oil and gas no longer qualifies
Oil and gas companies once made heavy use of flow-through financing. That ended with Bill C-32, the Fall Economic Statement Implementation Act, 2022 (S.C. 2022, c. 19), which received Royal Assent on December 15, 2022. For flow-through share agreements made after March 2023, paragraph 66(12.6)(b.2) of the Act means oil, gas and coal exploration and development expenses can no longer be renounced to investors. An oil and gas issuer should assume a flow-through structure is not available today.
How a Flow-Through Share Agreement Works
Everything starts with a written agreement. In it, the corporation agrees to issue shares for payment, incur eligible expenses and renounce them to the investor. The timing rules sit in subsections 66(12.6) to 66(12.74) of the Act.
The 24-month spending window. Expenses must be incurred in a set period. It starts on the agreement date and ends 24 months after the end of the month in which the agreement was made. An agreement signed on October 15, 2026, for example, would have a window ending on October 31, 2028.
The renunciation deadline. The corporation must renounce before March of the first calendar year that begins after that 24-month period. In the example above, that means before March 2029.
The effective date. According to the CRA's Instructions for the Flow-Through Share Program (T100), a renunciation can take effect before the date it is actually made. That lets investors claim the deduction in the year they bought the shares, which is usually why they invest.
No over-renouncing. A corporation cannot renounce more than it is entitled to renounce. If it renounces too much, subsection 66(12.73) requires the excess to be reduced. That cuts the investor's deduction, and the CRA reassesses the investor.
The issuer also has filing obligations. It must file the T100 forms with the CRA and deliver T101 slips to investors, or T5013 slips where a partnership holds the shares. Late filings hurt investors who are waiting on slips to file their own returns.
The Look-Back Rule for Flow-Through Shares and Part XII.6 Tax
The look-back rule in subsection 66(12.66) is what makes year-end flow-through financings work. It is also the most common source of issuer trouble.
Here is how it works. Say the agreement is made and the investor pays in year 1. The issuer can then renounce in year 2, but before March, with an effective date of December 31 of year 1. The expenses are treated as if they were incurred in year 1, even though the money has not been spent. The investor claims the deduction on the year 1 return. The catch: the money must actually be spent by the end of year 2, so the issuer has about 12 months from the start of year 2 to spend it, not 24.
Illustrative example. A corporation closes a flow-through private placement on November 20, 2026 and receives the subscription funds that day. In February 2027, it renounces the full amount with an effective date of December 31, 2026. Investors deduct the amount on their 2026 returns. The corporation must then incur the qualifying expenses by December 31, 2027. The dates are illustrative only, and the conditions in subsection 66(12.66) must be checked against the facts of each deal.
Part XII.6 tax. Because investors receive the deduction before the money is spent, Part XII.6 of the Act charges the issuer a tax on look-back renunciations. The CRA explains that the tax is calculated monthly on the portion that remains unspent after February of year 2, and that an additional 10% tax applies to amounts still unspent on December 31 of year 2. Section 211.91 sets the formula, which uses a prescribed interest rate and also reaches other renunciations at a reduced weighting. Model the tax with counsel before closing.
What happens if the money is not spent. The issuer must reduce the renunciation to match what it actually spent. Investors lose the related deduction and, for mining issuers, the related credit, and the CRA reassesses them. Investors then look to the agreement, which typically gives them an indemnity claim against the issuer for the lost tax benefit.
The Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit
For mining flow-through shares, the deduction is only part of the benefit. Two federal credits, both available only to individuals, sit on top of it. Both are defined in subsection 127(9) of the Act.
The 15% Mineral Exploration Tax Credit (METC)
The mineral exploration tax credit is a 15% federal credit on "flow-through mining expenditures," which are, broadly, grassroots exploration expenses renounced to individuals. The METC has been extended many times since it was introduced. The most recent extension was announced by Finance Canada on March 3, 2025 and confirmed in Budget 2025 on November 4, 2025. It was enacted by Bill C-15, the Budget 2025 Implementation Act, No. 1, which received Royal Assent on March 26, 2026. The credit now applies to flow-through share agreements entered into on or before March 31, 2027.
The 30% Critical Mineral Exploration Tax Credit (CMETC)
The critical mineral exploration tax credit is a 30% credit on "specified mineral exploration expenses," which are exploration expenses that target listed critical minerals. Bill C-32 created the credit, and qualifying agreements have been possible since spring 2022. The exploration must target a listed critical mineral, and a qualified person must generally certify that it does.
Bill C-15 then expanded the list. Budget 2025 had proposed 12 new minerals. Phosphate was not on the Budget list but appears in the enacted definition, so the enacted list is longer than the Budget list. Budget 2025 proposed that the newly added minerals apply to flow-through share agreements entered into after November 4, 2025 and on or before March 31, 2027. The consolidated definition confirms the March 31, 2027 end date, but the start date for the added minerals should be confirmed against the enacting text of Bill C-15.
Critical minerals eligible for the critical mineral exploration tax credit
| Minerals | Added by |
|---|---|
| Copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals, uranium | Bill C-32 (Royal Assent December 15, 2022) |
| Bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, phosphate, tantalum, tin, tungsten | Bill C-15 (Royal Assent March 26, 2026) |
Confirm the current definition of "critical mineral" in subsection 127(9) before relying on this list for a specific project.
Who can claim the credits
Only individuals can claim them. According to the CRA's page on reporting flow-through share investments, trusts and corporations cannot claim the METC or the CMETC. Individuals claim the federal credits on Form T2038(IND).
The March 31, 2027 cut-off
Both credits are tied to flow-through share agreements entered into on or before March 31, 2027. The consolidated definitions in subsection 127(9) refer to agreements made before April 2027, and as of October 1, 2026, we have found no enacted or announced extension past that date. The METC has been extended many times before, but that history is not a prediction. Any further extension would need a new budget measure and new legislation. The agreement date is the key test. The consolidated definition of "flow-through mining expenditure" also refers to expenses incurred before 2028, so check the spending timetable against subsection 127(9) as well. Issuers planning early-2027 financings should build their closing timetable around these dates and confirm the wording with counsel.
Ontario's 5% credit
Ontario adds its own credit on top of the federal ones. The Ontario Focused Flow-Through Share Tax Credit is 5% of eligible Ontario mineral exploration expenses, including eligible Ontario critical mineral exploration expenses. It is available to individuals resident in Ontario, not trusts or corporations, and the issuer must be a qualifying Ontario mining exploration company. As of October 1, 2026, the Ontario page shows no end date. Other provinces offer their own credits under their own rules.
A proposed change to CEE
Budget 2025 proposed a clarification, effective November 4, 2025. Under it, the costs of determining the economic viability or engineering feasibility of a mineral resource would not be CEE. As of October 1, 2026, the consolidated definition of CEE in subsection 66.1(6) does not contain that wording, and the Act's "Amendments Not in Force" list shows nothing on it, so the proposal does not appear to be enacted. Confirm its status before relying on it either way. Until then, issuers should treat feasibility-type spending as at risk of not qualifying.
How Investors Are Taxed on Flow-Through Shares
According to the CRA, a flow-through share has a deemed cost of zero. When the investor sells, the whole sale price is therefore generally taxed as a capital gain. The investor deducts the renounced expenses on line 22400 of the return, using Form T1229. The figures come from the T101 slip for direct holdings, or the T5013 slip for holdings through a partnership.
Some investors pair flow-through shares with charitable donation strategies. Those rules are technical and include anti-avoidance measures. Investors should speak with their own tax adviser before relying on any donation plan.
Flow-through deductions also work differently from accelerated capital cost allowance, which lets a business deduct its own capital costs faster. Our guide to immediate expensing in Canada covers that incentive.
The Securities-Law Overlay in Ontario
Flow-through shares are securities. Under section 53 of the Securities Act (Ontario), a distribution requires a prospectus unless an exemption applies. Most junior issuers raise flow-through money through private placements under National Instrument 45-106 Prospectus Exemptions. The accredited investor exemption in section 2.3 is the one used most often. Other exemptions may also be available depending on the issuer and the investors.
Relying on an exemption brings its own obligations. The issuer must confirm each investor's status. For individuals, the accredited investor tests turn on income, financial asset and net asset thresholds set out in the instrument. Securities issued under an exemption are generally subject to resale restrictions under National Instrument 45-102. The issuer must also file a report of exempt distribution on Form 45-106F1 within the required time. Listed issuers should also check their exchange's requirements on the pricing and approval of flow-through placements.
This section is an orientation only. The securities analysis depends on the issuer, its listing status and its investor base.
What to Put in a Flow-Through Share Agreement
The agreement is where the tax risk gets allocated between the issuer and the investors. The following points come up on almost every deal.
Definitions that track the Act. "Qualifying Expenditures" should mean CEE as defined in subsection 66.1(6). Where the credits are part of the pitch, it should also track "flow-through mining expenditures" or "specified mineral exploration expenses" under subsection 127(9). The agreement should also define the "Effective Date" of the renunciation and the "Expenditure Deadline."
Issuer covenants. The issuer should promise to incur Qualifying Expenditures by the deadline. That is December 31 of the following year if the look-back rule is used, and otherwise the end of the 24-month window. It should also promise to renounce with the agreed effective date, file the T100 forms on time and deliver T101 slips on time.
CMETC covenants. Where the 30% credit is marketed, the issuer should confirm three things. The target mineral was a listed critical mineral when the agreement was made. The work meets the exploration requirements. And a qualified person's certification will be obtained.
Issuer representations. These should cover principal-business corporation status, confirm that the shares are not "prescribed shares," and confirm that no arrangement exists that would defeat flow-through status.
Indemnity. Investors want to be made whole if the issuer under-spends or misclassifies costs and their deductions or credits are reduced as a result. Part XII.6 tax is an issuer liability under the Act, and the agreement should say expressly that the issuer bears it. Caps, survival periods and the method for calculating the investor's loss are the usual points of negotiation.
Use of proceeds and tracking. The agreement should restrict flow-through funds to qualifying expenses and exclude general and administrative costs. If the Budget 2025 CEE proposal is enacted, it should also exclude feasibility and economic viability work. The issuer should keep separate records that can support the renunciation on a CRA audit.
Multiple closings and warrants. Where a financing closes in tranches, the agreement should allocate expenses across the closings. If the units include warrants, it should deal with how the subscription price is allocated and how the warrants are reported.
Securities provisions. The agreement should state the exemption relied on, include investor status representations, and add the required legends and hold-period language.
Investor representations. Each subscriber should confirm whether it is an individual, since only individuals get the federal credits. For the Ontario credit, it should also confirm whether it is resident in Ontario.
Closing mechanics. For any deal that relies on the METC or CMETC, the conditions and timetable should keep the agreement date on or before March 31, 2027.
Common Mistakes to Avoid
Most flow-through problems come from a short list of errors:
- Spending flow-through money on non-qualifying costs such as general overhead.
- Missing the December 31 spending deadline under the look-back rule.
- Filing T100 forms or delivering investor slips late.
- Treating oil and gas expenses as eligible under a new agreement.
- Assuming the METC or CMETC will be available for agreements made after March 31, 2027.
- Relying on the 12-mineral Budget 2025 list instead of the enacted list, which includes phosphate.
Frequently Asked Questions
Is a flow-through agreement the same as a subscription agreement?
Usually it is a subscription agreement with flow-through terms added. The standard terms, such as price, closing and securities representations, stay in place. The flow-through provisions add the renunciation promises, the spending deadline and the tax indemnity. A form subscription agreement without those terms does not create flow-through shares.
Do flow through shares carry special investor rights?
No. Once issued, a flow-through share normally carries the same voting and dividend rights as any other common share of the same class. The tax benefit comes from the agreement, not from the share's terms. The issuer's obligations to the investor, such as spending and renunciation, are contractual.
Can a corporation invest in flow-through shares?
Yes. A corporation can subscribe and receive the renounced deductions. It cannot claim the METC or the CMETC, and the Ontario credit is limited to individuals resident in Ontario. Corporate investors should therefore price their subscriptions on the deduction alone, since the credits are not available to them.
Sources & Official Resources
Federal Statutes Cited
- Income Tax Act, s. 66: Flow-Through Share Rules
- Income Tax Act, s. 66.1: Canadian Exploration Expense
- Income Tax Act, s. 127(9): Investment Tax Credit Definitions
- Income Tax Act, s. 211.91: Part XII.6 Tax
- Income Tax Act: Amendments Not in Force
- Bill C-15, Budget 2025 Implementation Act, No. 1 (LEGISinfo)
- Bill C-32, Fall Economic Statement Implementation Act, 2022 (LEGISinfo)
Provincial Statutes and Programs
Government Guidance and Budget Documents
- CRA: Instructions for the Flow-Through Share Program (T100)
- CRA: Flow-Through Shares Glossary
- CRA: Reporting Your Flow-Through Share Investments
- Finance Canada: Government Extending Support for Mineral Exploration (March 3, 2025)
- Budget 2025: Tax Measures, Supplementary Information
Securities Regulators
This article provides general information as of October 1, 2026 and is not legal or tax advice. Flow-through financings turn on precise statutory conditions and filing deadlines, and the treatment of any particular financing depends on its facts. Review your transaction with qualified tax and securities counsel before relying on any deduction or credit.
Contact Hadri Law
If your corporation is planning a flow-through financing, or you need a flow-through share agreement drafted or reviewed, timing matters. The March 31, 2027 cut-off for the federal credits leaves little room for delay. Martina Caunedo, our tax lawyer, has more than 12 years in practice and extensive international tax experience, including CRA audits, objections and Tax Court appeals. She works alongside Nassira El Hadri, our founder and principal lawyer, and Nicholas Dempsey, corporate lawyer, whose practices cover financing transactions and commercial agreements. Learn more about our corporate tax lawyers.
Call (437) 974-2374 or book a free consultation. We serve clients in English, French, Spanish, and Catalan.
