What is the Ontario Focused Flow-Through Share Tax Credit?
A flow-through share (FTS) is a type of share investment in a mining, gas or energy company which permits its purchaser certain tax breaks.
There are many different companies that can issue FTS in Canada, but the Ontario Focused Flow-Through Share (OFFTS) tax credit pertains specifically to shares bought in mining companies dedicated to mining exploration within Ontario.
This program is sponsored by the provincial government and aims to boost mineral exploration in the province by making it easier for smaller companies to access capital.
How Does the Tax Credit Work?
The tax credit works as follows: if you own shares in a mining company, you are effectively (as a shareholder), a partial owner of the company.
If the company begins mining exploration in Ontario, you assume partial responsibility for the expenses the company incurs while doing this.
You help to fund their exploration.
The expenses you run up doing this are tax-deductible.
This means you can offset your investment expenses against your income and reduce your overall tax burden.
The amount you can claim as a credit is 5% of your share of the eligible expenses incurred during the tax year – though the exact numerical figure for this depends on how many shares you have and the value of the expenses incurred.
Ontario Focused Flow-Through Share Tax Credit Eligibility
Clearly, this is a program designed for a very specific purpose, so there are strict eligibility criteria to meet before the tax credit becomes relevant.
To qualify for the OFFTS tax credit, you yourself must have:
- Lived in Ontario on the last day of the tax year you are filing for
- Purchased FTS in an eligible company
- Purchased the shares after October 17th, 2000
The tax credit is for individuals only, and not corporations, trusts or corporate partners.
Issuing Company Eligibility
In addition, the company issuing the shares must:
- Be permanently based in Ontario
- Be a principal business corporation, as defined in the Income Tax Act, whose primary business is exploring and mining for minerals
In addition to these rules, the expenses incurred must meet certain criteria, primarily centered on determining the existence, location, extent or quality of a mineral resource in Ontario, and include:
- Environmental studies
- Community consultations
- Geological, geophysical or geochemical surveys
- Labour and field supervision
- Contractor’s and consultant’s fees
- Supply and equipment rental fees
- Supply transportation
- Food and lodging
- Other overhead costs
Crucially, ineligible expenses are as follows:
- Expenses incurred on any existing mine (including expansions or extensions)
- Purchase of seismic data
- Legal costs
- Financial costs
- Oil or gas wells
How To Claim The OFFTS Tax Credit
Applying for the OFFTS tax credit is relatively simple, and can be done as part of your normal yearly tax filing.
When completing your income tax returns, you will want to note your eligibility in your T1, and then separately complete:
- Form ON479, Ontario Credits
- Form T1221, Ontario Focused Flow-Through Share Resources Expenses for 2001 and Subsequent Years
You will also need some supporting paperwork from the mining exploration company that issued the shares:
- Form T101 Statement of Resource Expenses, or
- Form T5013 Statement of Partnership Income
All of these forms and supporting documents can be filed either electronically or by mail.
Frequently Asked Questions
- Who can claim the Ontario focused flow-through share tax credit?
Any individual meeting the OFFTS tax credit eligibility criteria can claim the tax credit. To be eligible, you must have: lived in Ontario on the last day of the tax year you are filing for; purchased FTS in an eligible company, after October 17th, 2000; have incurred eligible expenses. To be considered eligible, expenses must be directly related to the exploration of mineral resources in Ontario; anything relating to expanding or mining an existing site is irrelevant.
- Where can I buy flow-through shares?
Flow-through shares must come directly from eligible, Ontario-based mining companies in order to qualify under the OFFTS tax credit program. This means you need to focus on companies that are permanently based in Ontario and registered as a principal business corporation whose primary business is exploring and mining for minerals, as defined in the Income Tax Act. Once you have identified companies that meet this standard, you can only purchase FTS from them directly – not via any third party.