Understanding the Structured Flow-Through Financing Model

Flow-Through Shares (FTS) represent a distinctive financial instrument in Canada, designed to stimulate investment in the resource exploration sector. These shares offer tax advantages by allowing investors to deduct exploration expenses from their taxable income. This summary explores how Structured Flow-Through (SFT) financing,  which is also called Charity Flow-Through or 'CFT' financing, leverages Flow-Through Shares and Charitable Donation Tax Credits to create a mutually beneficial structure for investors, resource companies, and charitable organizations.

Flow-Through Shares:

Flow-Through Shares are a tax incentive specific to Canada that permits resource companies to transfer certain exploration expenses to investors. Investors who purchase these shares can then deduct these expenses from their taxable income, effectively lowering their tax liability. This mechanism encourages investment in the resource sector by providing direct financial benefits to investors while simultaneously funding exploration activities.

Charitable Donation Tax Credits:

Canadian taxpayers are eligible for Charitable Donation Tax Credits when they donate to registered charities. These credits reduce the amount of tax owed, enhancing the attractiveness of charitable contributions by lowering their after-tax cost. When combined with Flow-Through Shares, these tax credits amplify the financial incentives for investors.

Combination of Tax Benefits:

CFT financing is structured to take advantage of both Flow-Through Shares and Charitable Donation Tax Credits. Resource companies issue Flow-Through Shares to investors. Instead of retaining these shares, investors donate them to a registered charity, thereby gaining tax deductions for both the investment and the charitable contribution.

Reduced Market and Liquidity Risk:

By donating Flow-Through Shares to a charity, investors mitigate market risks, such as share price volatility and liquidity challenges. The charity, upon receiving the shares, typically sells them at a discounted price, either to other investors or on the open market. This process ensures that the charity benefits from the donation while the investor avoids the risks associated with holding the shares.

Philanthropists/Investors: The CFT structure significantly reduces the after-tax cost of donating, making philanthropy more financially accessible.

Resource Companies: These companies benefit from easier access to capital with reduced equity dilution, which       is essential for funding ongoing exploration and development projects.

Charities: The charitable organizations receive donations that can be converted into cash through  the sale of the Flow-Through Shares, providing them with valuable resources to support their missions.

The Structured Flow-Through financing model plays a vital role in supporting two crucial sectors of the Canadian economy: the charity and not-for-profit sector and the resource exploration and development sector. By facilitating philanthropic contributions through tax incentives and enabling resource companies to raise capital with minimal dilution, SFT financing serves as a powerful tool for economic growth. It fosters investment in the exploration of natural resources while simultaneously advancing charitable causes, creating a win-win scenario for all parties involved.

Structured Flow-Through financing exemplifies the innovative financial strategies available in Canada to encourage investment in resource exploration while promoting charitable giving. Through the combination of Flow-Through Shares and Charitable Donation Tax Credits, this structure provides significant benefits to investors, resource companies, and charities alike. As a result, SFT financing stands out as a compelling capital device for those interested in contributing to Canadian resource exploration and supporting charitable initiatives.