Many people in Ontario like to invest their money into shares, and mining exploration is a popular choice. When you invest in mining exploration here in Ontario, you may be able to claim some of these expenses under what is known as the Ontario focused flow-through share tax credit. Let’s see a little more about flow-through shares, what they are, and how you can qualify for the credit.
What are flow-through shares?
You can make many different types of investments in Ontario, and a flow-through share is one of them. A flow-through share, or FTS, is an investment made into a corporation that will use your shares for mining, oil, gas, or energy conservation.
Your investment is used to finance project development. And in exchange for your investment, you will receive a certain number of shares (depending on how much you invest). This means that you will share ownership of the company.
Flow-through shares are a risky investment, as many of them do not provide any returns. With that being said, the ones that do provide returns are often very successful and provide substantial returns on investment. But because they are such a risky investment, the Government offers tax incentives to anyone who invests. These incentives are known as flow-through share tax credits.
How does Ontario Focused Flow-Through Share Tax Credits Work?
When you invest in the mining industry in Ontario, you receive a “share” of the corporation that you invest in. This means that you own a portion of the corporation. Because you own a piece of the corporation, expenses for mining and exploration are transferred to you – the shareholder.
To incentivize people to invest in such a risky undertaking, the Government offers a refundable tax credit on your income tax return. This credit is 5% of the expenses incurred.
To be eligible for this Tax Credit, you must have invested in a corporation that has invested in mining exploration for the purposes of determining the “existence, location, extent, or quality of a mineral resource” in Ontario. Investments made into already existing mines do not qualify for the Flow-Through Share Tax Credit.
In addition to the above, you must also be an Ontario resident on the last day of the tax year that the return is being filed for. The corporation you purchased the shares from must also be in Ontario.
What expenses are covered by the Flow-Through Share Tax Credit?
The Ontario Ministry of Finance Website has a comprehensive list of all expenses eligible under the Flow-Through Share Tax Credit.
These include, but are not limited to, any costs related to geological, geophysical, or geochemical surveying, trenching, labour and field supervision, and supply and equipment rental fees. Charges related to supply transportation, food and lodging, and overhead costs are also covered.
Just as the Ontario Ministry of Finance provides a list of eligible costs, it also includes a list of expenses not eligible for the Flow-Through Share Tax Credit.
The Government Credit does not cover extensions of mines, the purchase of seismic data, legal and financial costs, and oil or gas well expenses. Again, this is not a comprehensive list. Please refer to the Ministry of Finance Website or speak to a financial representative for information.
How do I apply for the Flow-Through Tax Share Credit?
The Flow-Through Tax Share Credit should be filed for at the same time you file your regular income tax returns. The appropriate forms will be included with your T1 general form. Here, you will want to compete for ON479, Ontario Credits.
In addition to this, you will also need to file a T1221 form for Ontario Focused Flow-Through Share Resource Expenses for 2001 and Subsequent years.
When filling out your forms, be sure to include copies of any relevant documents relating to your share investment. You will need a Statement of Partnership Income from the company of which you purchased your shares. A Statement of Resource expenses is also acceptable.
You can file for your Flow-Through Tax Share Credits with a paper return or electronically. If filing with a paper return, be sure that you attach any certification documents. If filing electronically, be sure to keep all of this information in a safe spot in case requested later.
Should I invest in Flow-Through Tax Shares?
This is a personal decision. Remember, as mentioned earlier, the mining industry is a very risky investment. If you’re looking to play it safe, Flow-Through Tax Shares probably aren’t the way to go.
With that said, if you’re looking for high-risk, high-reward investment, the mining industry may be a great choice. It is important to consult a professional before making any investment decisions.
Having said that, because Flow-Through Shares are such a risky choice, experts suggest that they should not exceed 10-15% of your investment portfolio.
If you do choose to invest in Flow-Through Tax Shares, be sure to apply for the Tax Incentives at the end of the year to recoup some of your money invested.