When it comes to tax and junior mining, there have always been a few hold-your-breath moments.
The first is at the Prospectors and Developers Association of Canada (PDAC) convention every March in Toronto. We congregate at the largest mining conference in the world, nervously packing a reception hall to hear from the finance minister on whether the Mineral Exploration Tax Credit (METC) will be extended.
Fortunately, in 2018, the METC was extended for five years – the first multi-year renewal since the policy was created in 2000. But prior to that, we were on a razor’s edge every year, waiting to hear the fate of a tax policy that has been so crucial to Canadian mining.
The extension is announced, followed by an exhale and collective round of applause.
Similarly, the fate of flow-through shares has been equally uncertain. In April, prior to the federal budget, those of us in the tax world wonder – will the government continue this all-important policy? Will it be watered down by increasing the capital gain inclusion rate?
Flow-through shares have been around since 1954, offering 100% tax deduction for high-taxed Canadians who purchase them. Meanwhile, in May 2006, our firm WCPD Inc. (Wealth, Creation, Preservation & Donation) made financial services history when one of our clients participated in the first flow-through share donation structure without paying a capital gain.
Once flow-through shares are purchased by our clients, they don’t hold them for long—often less than a minute. The buyer can then sell their shares, at a discount, to a third party, or liquidity provider, thus eliminating any stock market risk for the investor or donor.
You can also donate the shares to a registered charity. The charity then sells the shares, at the same discounted price, to the liquidity providers. Liquidity providers are usually expert mining institutional investors with a long-term investment horizon, which is a perfect fit for junior flow-through issuers.