Canadian resource companies have the ability to deduct certain operational expenses through the Canadian Exploration Expense (“CEE”) and Canadian Development Expense (“CDE”). By issuing flow-through shares, resource companies can pass on their CEE or CDE write-offs to investors (hence the term “flow-through”), allowing investors to deduct these expenses against their own personal income.
Ultimately, FTS benefit the resource company by passing on exploration and development expenses while providing the individual investor with tax incentives. Many attribute much of Canada’s mineral exploration culture to this favorable investing/tax incentive created by the Federal government.