The need for carbon capture and storage (CCS) deployment at an accelerated rate globally is very clear. Yet, CCS is often challenged from an investment or funding standpoint.   

Recently there have been discussions on the expansion of flow-through shares as an opportunity for creative investment. The mining and energy sectors in Canada have successfully used this incentive for years – thereby raising the question: Is this a mechanism that can be applied to the further development of CCS?  

What are Flow-Through Shares? 

Flow-through shares are a unique financing tool available to Canadian resource industries, such as start-up companies in mining, oil & gas, and renewable energy sectors.   

Generally, these businesses are in their first few years of operation or in the exploration and development phase of new projects and both are not in a position to generate profit and lack significant revenue. With the use of this financing tool, the company could issue flow-through shares to investors who in turn would claim deductions for the company’s development expenses. 

Flow-through shares are a special issue of common shares where tax deductions that have been renounced by the corporation, can be issued to investors, and then become regular common shares after the tax deduction is completed. The issuance of these flow-through shares enables a start-up company to raise project funds while the investors claim those expenses as income tax deductions. 

How do Flow-Through Shares Work? 

Flow-through shares are considered ordinary common shares and can be purchased through a “Flow-Through Share Agreement” between the investor and the corporation, through a ‘Limited Partnership’. The partnership assembles a portfolio of companies with an interest in flow-through shares where the corporation’s expense is passed up to the partnership which in turn distributes it to shareholders or through a trust. 

By shifting the tax deduction from the corporation to the purchaser(s), flow-through shares provide the financing incentive for exploration ventures whilst providing a benefit to the shareholder(s) because the investment tax credits qualify as flow-through expenditures, and the investment is 100% deductible against the investor’s income.  


For the same reasons that flow-through shares are a great incentive for start-up mining companies, this financial tool is well suited for CCS projects, specifically due to: 

  • the long lead time for CCS projects (up to 6 years) during which no income is generated and development expenses are incurred; 
  • flow-through shares can provide the necessary cash injection needed to support large projects over an extended time period; and,  

  • meeting the shared needs of a limited partnership by providing an opportunity for a 100% tax deduction for investors. 

What is needed to see this financial incentive being open to large-scale CCS projects? 

Since the regulations already exist for flow-through shares within the Canada Revenue Agency (CRA) structure, clarification would need to be provided on whether current definitions could be expanded to include CCS projects or revisions to the regulations (and definitions of those parameters) would need to expand to include the CCS industry.  

Specific considerations would include: 

  • A clarification on whether a CCS project could qualify if it is attached to a resource industry, such as with the use of enhanced oil recovery (EOR). 

  • The inclusion of CCS project developers within the definition of a principal-business corporation if the technology company relies on CCS as part of its core business due to the large capital asset required. 

  • A consideration for expenditures associated with CCS project development, such as: feasibility studies, front end engineering (FEED) studies, construction etc… within the eligibility for flow-through shares.  


To be eligible for flow-through shares, expenses must meet criteria in either the Canadian Exploration Expenses (CEE) and/or some Canadian Development Expenses (CDE) as defined by the CRA

Canadian exploration expense (CEE) [Ss. 66.1(6) Definitions] - includes certain expenses incurred to determine the existence, location, extent, or quality of a mineral resource or of an accumulation of petroleum or natural gas in Canada. In addition, certain expenses incurred to bring into production a natural accumulation of petroleum or natural gas in Canada, or a new mine in a mineral resource in Canada may also qualify as CEE. The definition of CEE also includes Canadian renewable and conservation expenses (CRCE). 

Canadian development expense (CDE) [Ss. 66.2(5) Definitions] - includes certain expenses for the development of an oil or gas well in Canada, or of a mine in a mineral resource in Canada.  

Additionally, in order to create a valid flow-through shares structure, a company must be a principal-business corporation (PBC), defined by the CRA: 

Principal-business corporation (PBC) [Ss. 66(15) Definitions] - a corporation whose principal business is certain activities related to the oil and gas, mining, renewable energy, or energy conservation sectors. A holding company whose assets are composed of 90% or more of shares or indebtedness of a related PBC may also qualify as a PBC.  


It is well documented and understood that in order to reach impactful reductions in carbon dioxide (CO2) emissions from energy and industrial sectors, wide deployment of large-scale CCS is required. As a proven technology, the primary barrier to moving forward remains the need for an injection of funding which in turn would incite innovation, create high-value jobs and stimulate the economy.   

The success of flow-through shares in sectors such as mining and oil & gas illustrates that existing instruments are already in place – that a huge overhaul would not be required; rather only amendments to the definitions of acceptable projects to include CCS as a proven resource. By leveraging the existing financial tool, flow-through shares provide an opportunity to stimulate the deployment of significant CCS projects with local and global impact.   

For more information, please visit the Canada Revenue Agency (CRA). Flow-through shares (FTSs) webpage.