The Tax Deduction a Startup Can’t Use May Be Exactly What an Investor Wants
Here’s one of the smartest arguments for extending Flow-Through Shares to technology startups.
Many young companies don’t have taxable income.
Of course they don’t.
They’re spending money on research, people, prototypes and commercialization long before they’re generating significant profits.
That creates a strange situation.
The company may be generating valuable tax deductions from qualifying R&D expenses — but have very little immediate use for them.
Borden Ladner Gervais explains how Flow-Through Shares solve exactly that problem.
Under the existing model, a qualifying company can transfer — or “flow through” — eligible deductions to investors. Investors can use those deductions today, while the company receives a premium for the shares it issues. BLG notes that for an early-stage company with no positive taxable income, the current value of the deductions it gives up may be very small.
That’s the point.
FTS turns a future tax asset into current financing.
Mining companies have been doing it for decades.
Why shouldn’t a Canadian AI, quantum, biotech or advanced-manufacturing startup be able to do something similar with qualifying Canadian R&D?
This isn’t government picking winners.
It’s government defining eligible expenditures and letting private investors decide which companies deserve their capital.
BLG’s analysis makes something very clear:
Canada doesn’t need to invent the mechanism.
We need to adapt it.
Read the full BLG analysihttps://www.blg.com/en/insights/2025/ri/the-expansion-of-flow-through-shares-to-innovation-waiting-for-godot?utm_source=chatgpt.coms
Read the FTS-Tech proposal. Challenge it. Decide for yourself.
Read the report and Add Your Voice
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