MERN - Québec Mines











        ISSN en ligne :
        1499-383X





November 2001
 


Two-year extension of tax benefits related
to flow-through shares

Luc Chouinard and Jean Désilets
Direction de la politique et de l'économie minérales

A flow-through share is a share issued by a resource corporation, which foregoes deducting its exploration expenses in favour of the investor in a context of public funding. The gouvernement du Québec has extended tax benefits related to flow-through shares until December 31, 2003.

Québec tax

Québec's Taxation Act states that an individual investor may enjoy a significant tax deduction in calculating his taxable income.

The Québec taxation system provides for a basic deduction of 100% of the cost of flow-through shares. Further, the individual may enjoy an additional 25% deduction when the exploration expenses are incurred in Québec by a company that does not earn mineral resources income.
Added to this is another 50% deduction, bringing the total to 175% of the investment cost when surface exploration is involved.

The company may also forego deducting the cost involved in issuing the flow-through shares, in which case the individual may claim up to 15% of the investment cost that same year-the surplus being deductible over five other years.

When the share is sold, Québec's taxation system also provides for an exemption of the deemed capital gain, i.e. the difference in the share acquisition cost and its nil adjusted cost price.

Federal tax

Where federal measures are concerned, an individual investor may, under the Income Tax Act, claim a basic deduction of 100% of the investment cost incurred to issue flow-though shares. Moreover, the federal government grants a non-refundable tax credit in the amount of 15% of the surface exploration costs incurred before 2004.

When the flow-through share is sold, the individual pays tax on the capital gain on the entire sales price, since the base price of the share is deemed to be zero.

A highly lucrative net tax cost

For the 2001 taxation year, the net tax cost of $1,000 in flow-through shares is $215 for an individual subject to the highest marginal tax rate.

Flow-through share tax system

 

Funding

Tax credit rate

Québec tax

Federal tax

Exploration company

  • 100% of the cost of flow-through shares (basic deduction)

    plus

  • 25% for exploration in Québec

    plus

  • 50% for surface exploration
  • 100% of the cost of flow-through shares (basic deduction)

    plus

  • Investment tax credit of 15% of surface exploration costs

Mining producer

  • 100% of the cost of flow-through shares
  • 100% of the cost of flow-through shares

    plus

  • Investment tax credit of 15% of surface exploration costs

Publication:

Flowthrough shares - To stimulate mining exploration within Québec
(PDF Format, 497 kb)




















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