I have spent years —- correction 4 decades —- watching Canadian startups raise their most important rounds from foreign investors, then watching the ownership, the intellectual property, and the strategic decisions follow the money out of the country.
The pattern is measurable. Ownership of more than 200 promising companies has left Canada since 2017, and three-quarters of the patents held by venture-backed Canadian startups involved in recent takeovers now sit in foreign hands.
The offices stay. The power leaves.
Here is what strikes me about this problem: Canada already built the instrument that solves it. We just parked it in one sector and forgot it exists.
This is bigger than a shortage of venture capital. It is a capital-formation problem: Canada creates extraordinary technology, but our financial architecture does too little to mobilize Canadian private money when young companies are still building, commercializing and establishing ownership. I lay out the full argument in Canada Doesn’t Have an Innovation Problem. It Has a Capital Formation Problem. Flow-Through Shares matter because they attack that problem at its source — by changing the economics for the private investor writing the cheque.
A Seventy-Year-Old Tool Hiding in Plain Sight
Flow-Through Shares let a company pass eligible expenses through to investors, who deduct them from their own taxable income. Mining has used this structure since the 1950s to attract risk capital into ventures with high up-front costs and no early revenue.
That description fits an early-stage tech company as precisely as it fits an exploration play. Long lead times. High capital intensity. Specialized talent. Zero revenue while the hardest work gets done.
The structure was extended before, first to oil and gas, then to renewable energy 29 years ago. Each time Canada recognized a new frontier, the policy followed and the economy grew.
Technology is the next frontier. The mechanism is sitting right there.
The UK Already Ran This Experiment
Skeptics will call this untested. The evidence says otherwise.
Britain launched its Enterprise Investment Scheme in 1994 and its Seed Enterprise Investment Scheme in 2012, giving investors tax relief for backing high-risk startups. Over 31,000 UK companies have received roughly £30 billion through EIS alone.
The output is measurable: nearly 80,000 patents filed by EIS investee companies since 2014, over 100,000 jobs created, and 46% of UK unicorns funded through the scheme.
Prime Minister Mark Carney watched these programs work firsthand as Governor of the Bank of England. Ottawa would adapt a proven idea, with the added advantage of seven decades of domestic flow-through administration behind it.
Take the Risks Seriously, Then Design Around Them
I will not pretend expansion is free. The federal revenue foregone from flow-through shares and the Mineral Exploration Tax Credit averaged $440 million annually between 2007 and 2012. Extending eligibility raises that cost.
There are real design challenges. Some companies will seek capital they would have attracted anyway. Eligibility verification gets harder outside resource exploration. Sector creep dilutes program intent if you let it.
These are engineering problems, and engineering problems have engineering answers:
- Define eligible sectors tightly. Capital-intensive, early-stage, high-innovation companies. Nothing else.
- Cap the benefit. Limit investment sizes and investor profiles to control fiscal exposure.
- Align with registered plans. RRSP inclusion works with existing CRA safeguards. TFSAs stay out, since the deduction is wasted where income is already tax-free.
- Integrate with existing programs. Coordinate with current incentives instead of stacking redundant ones.
The compliance framework already exists in mining. Extending it costs less than building from scratch.
Mining Gains From This Too
Some mining leaders worry that expansion dilutes their program. The evidence points the other direction.
Investments in AI research and development for Canadian mining are projected to reach CAD 2.3 billion. Modern operations run on predictive analytics, sensors, and automation. The tech that keeps Canadian mines competitive gets built by someone, and the funding structure decides where that someone lives and who owns what they build.
Art Korpach, retired Vice-Chairman of Investment Banking at CIBC World Markets, framed the stakes plainly:
“Updates to FTS to cover not just our critical minerals, but also technology and software developments would be transformational for Canada’s VC sector.”
Every prior expansion of flow-through created new investor classes who became repeat participants. Tech would do the same, deepening the pool for mining issuers along the way.
The Cost of Waiting Is Already on the Books
This decision is commonly framed as a spending question. I read it as an ownership question.
Canada sits on lithium, nickel, cobalt, and rare earths. Extract them raw and ship them out, and the lucrative parts of the value chain leave with them. Fund the domestic tech that processes and adds value at home, and the jobs, the IP, and the upside stay.
The federal government has signaled readiness. Minister of Artificial Intelligence and Digital Innovation Evan Solomon named the tool directly in his first speech, calling for tax credits and flow-through shares to “start the flywheel, not just of investment but of adoption.”
The instrument works. The precedent exists. The roadmap is published.
Ottawa built this tool decades ago. The remaining decision is whether to point it at the companies building Canada’s future, or keep watching the ownership ledger fill up with foreign names.
If you hold a stake in that answer, add your voice at www.CanFlowThrough.com.
