The Canadian Federal Government allows Canadian resource companies that invest in the mining sector to fully deduct certain exploration expenses, known as Canadian Exploration Expenses (CEE). To raise capital for exploration, those companies often issue flow-through shares and pass along the rights to claim the CEE to the purchasers of those shares. The shareholders are then able to deduct the CEE or exploration expenses and tax write-offs against their own income.
A flow-through share (FTS) is a tax-based financing incentive that is available to, among others, the mining sector. A FTS is a type of share issued by a corporation to a taxpayer, pursuant to an agreement with the corporation under which the issuing corporation agrees to incur eligible exploration expenses in an amount up to the consideration paid by the taxpayer for the shares.
A flow-through limited partnership enables investors to own an equity interest in a portfolio of flow-through shares of Canadian resource companies rather than of just one company. Canadian resource companies receive special tax deductions for certain exploration and development expenses that flow through the limited partnership to investors, who receive up to a 100% tax deduction for the amount invested. Typically, after a period of 18-24 months, assets (the shares of the Junior Mineral Issuers) of flow through limited partnerships roll over (to provide a liquidity event) on a tax-deferred basis in exchange for redeemable units or shares of a resource-based mutual fund of equal value. In the Cordillera Minerals Flow-Through Limited Partnerships, the Partnership provides a liquidity event to the Partnership’s investors in 12 months or less and the Investor’s receive their pro-rata share of the Partnership’s Portfolio directly into their individual brokerage accounts.