http://www.cra-arc.gc.ca/tx/bsnss/tpcs/fts-paa/nvstr/hw-eng.html

Canadian exploration expense (CEE) [Ss. 66.1(6) Definitions] - includes certain expenses incurred to determine the existence, location, extent, or quality of a mineral resource or of an accumulation of petroleum or natural gas in Canada. In addition, certain expenses incurred to bring into production a natural accumulation of petroleum or natural gas in Canada, or a new mine in a mineral resource in Canada may also qualify as CEE.

The definition of CEE also includes Canadian renewable and conservation expenses (CRCE).

Canadian exploration and development overhead expense (CEDOE) [Reg. 1206(1) and (4.2)] - a CEE (excluding CRCE) or a CDE incurred in respect of:

• administration, management, or financing;
• salary, wages or other benefits of an employee whose duties are not all or substantially all for exploration and development;
• maintenance or rental of, or taxes or insurance on, property that is not all, or substantially all, used for exploration or development; or
• the use of property of, compensation for services of, or acquisition of materials, parts, or supplies from a person connected with the corporation such that the expense is more than the costs incurred by person in respect of such property, services, etc.

CEDOE are excluded from the resource expenses that may be renounced to investors.

How the flow-through share (FTS) program works

Individuals, trusts, corporations, and partnerships can invest in FTSs, but only the original investors can deduct the amounts renounced to them.

The corporation that issues the FTS must be a principal-business corporation (PBC). There must be a written flow-through share agreement between the investor and the corporation. The corporation can then renounce and "flow through" eligible exploration and development expenses to the original investors. The type of expenses a PBC can renounce are:

• Canadian exploration expenses (CEEs), which are added to the cumulative CEE (CCEE) pool and can be deducted up to the maximum of 100%; or
• Canadian development expenses (CDEs), which are added to the cumulative CDE (CCDE) pool and can be deducted up to the maximum of 30%.

FTS investors may benefit from:

• deductions from income through renounced expenses;
• an investment tax credit (ITC) on flow-through mining expenditures for individuals; and
• amounts renounced to the partnership, which can be allocated to the partners.

Individuals (excluding trusts) can claim a 15% non-refundable ITC for certain mining CEEs renounced on investments in FTSs of mineral exploration companies. The investor and the corporation must have entered into an FTS agreement on or before March 31, 2008. Under the "look-back" rule, funds raised with the benefit of the credit in 2008, for example, can be spent on eligible exploration up to the end of 2009.

The following provinces offer provincial tax credits that are similar to the federal FTS credit:

• BC Mining Flow-Through Share Tax Credit
• Manitoba Mineral Exploration Tax Credit
• Ontario Focused Flow-Through Share Tax Credit
• Saskatchewan Mineral Exploration Tax Credit ended December 31, 2005.
• Quebec - Flow-through shares