How Flow-Through Shares for High-Tech Startups Could Work in Canada
Flow-through shares have been a proven tool for driving investment into Canada’s mining sector. But what if we applied the same model to our growing, and often underfunded, technology startup ecosystem?
Executive Summary of Proposed FTS for High Tech Startups
- Adapt Canada’s proven mining flow-through model to tech startups.
- Use existing brokers and infrastructure so that no new system needed.
- Keeps innovation, IP, and jobs rooted in Canada.
- Investors get tax benefits; startups get early-stage capital.
- Models in the UK and Australia show sector-wide success.
How It Might Work
Investors would purchase newly issued flow-through shares through brokers, underwriters, or platforms already facilitating mining flow-through offerings.
Part of qualifying for the flow-through program, the startup would need to meet specific criteria, such as reinvesting a high percentage of funds into R&D, commercialization, or Canadian talent. The company would then “renounce” those qualifying expenses to the investor, who could receive a tax deduction and possibly an investment credit (similar to the Critical Mineral Exploration Tax Credit in mining) or a form of equity in return.
Shares would likely be subject to a minimum holding period, encouraging long-term capital and giving startups the time to grow. A holding period of 3 to 5 years would balance investor protection with business needs.
Why It Matters
Canada already offers R&D tax credits (like SR&ED), but those programs are targeted to help people get jobs — whether those jobs are with Canadian companies or foreign-owned firms.
This program would be focused on helping Canadian companies grow. It would not only create high-value jobs but also help stop the leakage of intellectual property and talent from Canadian startups.
Other benefits include:
- Increased private capital for early-stage innovation
- Reduced dependence on foreign venture capital
- Stronger commercialization pathways for Canadian R&D
- More Canadian-controlled scale-ups
One of the advantages of this idea is the infrastructure needed: the government wouldn’t need to build a new system. The brokers, legal structures, and tax mechanisms already used for mining FTS could be adapted to the tech sector, with updated eligibility rules and safeguards.
How It’s Done Today:
Canada, the UK, and Australia
Canada: Flow-Through Shares for Mining Exploration
Canada’s flow-through share system allows junior mining companies to pass eligible exploration expenses to investors. Investors:
- Purchase shares from brokers or dealers
- Receive a 100% tax deduction for the investment
- May qualify for additional federal and provincial credits (e.g., 15% METC or 30% CMETC)
- Must typically be accredited or meet certain income thresholds
Each year, over C$1 billion is raised through this mechanism, making it a critical source of capital for high-risk resource exploration.
United Kingdom: EIS and SEIS
To support startups and scale-ups, the UK offers:
- EIS (Enterprise Investment Scheme):
- 30% income tax relief on up to £1 million/year
- Capital gains tax deferral and loss relief
- SEIS (Seed Enterprise Investment Scheme):
- 50% income tax relief on up to £100,000/year
- Full CGT exemption on SEIS gains
These programs are available across multiple sectors, including tech, cleantech, life sciences, and consumer products. Over £34 billion has been invested through EIS and SEIS combined.
Australia: Junior Minerals Exploration Incentive (JMEI)
JMEI lets junior resource companies pass exploration tax credits to investors. While smaller in scale than Canada’s FTS, it has proven highly efficient:
- Investors receive tax offsets, increasing after-tax returns
Though JMEI is focused on mining, the structure could be expanded to support innovation in other sectors.
What Canada Can Learn
Unlike Canada’s current system, both the UK and Australia offer investor incentives across multiple industries, not just natural resources. Their programs make it easier for capital to flow into innovation-rich sectors like technology, energy, and science, creating economic value beyond extraction.
By adapting our successful mining FTS model to high-tech startups, Canada has the opportunity to unleash a new wave of investment, while keeping the innovation, IP, and jobs rooted at home.
