Flow through shares tax: 100% deduction, nil cost, 15% or 30% credit

For 2026, your client deducts 100% of the exploration expense a mining or energy company renounces on flow through shares (development expense at 30% a year), and may claim a 15% federal credit on mining exploration, or 30% for critical minerals. The shares have a nil cost, so the whole sale price is a capital gain, 50% taxable.

What does your client deduct, and when?

A flow through share is a share of a principal business corporation, a company whose main business is mining or exploring for minerals or exploring and drilling for oil and gas laws-lois.justice.gc.ca. The company signs a written agreement with the investor and renounces its eligible exploration and development expenses to them, and only the original investor can deduct those amounts canada.ca. Here's what each piece does on an individual's T1, as of October 2026:

Item	Tax treatment	Where it goes
Canadian exploration expense (CEE) renounced to your client	Added to the CCEE pool, deductible up to 100%	Line 22400, worked out on Form T1229
Canadian development expense (CDE) renounced to your client	Added to the CCDE pool, deductible up to 30% a year on the declining balance	Line 22400, Form T1229
Flow through mining expenditure	15% federal investment tax credit for an individual (not a trust)	Line 41200, Form T2038(IND)
Flow through critical mineral mining expenditure	30% federal investment tax credit for an individual (not a trust)	Line 41200, Form T2038(IND)
Credit claimed this year	Reduces the CCEE pool after the year ends; a negative pool is income	ITA 66.1(1) and (6)
Sale of the shares	Nil cost, so the whole price is a capital gain, 50% taxable	Line 12700, Schedule 3

The pool rates come from the CRA: CEE can be deducted up to 100% and CDE up to 30% canada.ca. An individual claims the resource expenses on line 22400 using Form T1229 canada.ca. Your client gets a T101 if they bought directly from the company, or a T5013 if they invested through a limited partnership canada.ca. In the partnership case the deduction is taken at the partner level, not by the partnership canada.ca.

The credit rates are in the investment tax credit definition in s.127(9): 15% of flow through mining expenditures and 30% of flow through critical mineral mining expenditures, both only for an individual other than a trust laws-lois.justice.gc.ca. Corporations can't claim the federal credit or the provincial flow through credits canada.ca.

Which agreements still qualify for the 15% and 30% credits?

As of October 2026, the Act limits the 15% credit to exploration expenses incurred after March 2025 and before 2028 and renounced under an agreement made after March 2025 and before April 2027 laws-lois.justice.gc.ca. Preliminary sampling, and the trenching or test pits dug for it, don't count unless it's specified sampling.

The 30% critical mineral credit needs an agreement made after April 7, 2022 and on or before March 31, 2027, exploration from or above the surface primarily targeting critical minerals, and an exploration plan certified by a qualified professional engineer or professional geoscientist laws-lois.justice.gc.ca. The same expense can't earn both credits.

Unused credit can be carried back 3 years or forward 20 years on Form T2038(IND), and the claim has to reach the CRA within 12 months after the filing due date for the year the expenditure arose canada.ca. The current T2038(IND) is the 2025 version canada.ca. Some provinces add their own credit; the CRA lists programs in British Columbia, Manitoba, Ontario and Quebec canada.ca.

How far ahead is a client who buys $50,000 of mining flow through shares in 2026?

Your client's taxable income stays above $258,482 even after the deduction, so every dollar of it is taxed federally at 33% in 2026 canada.ca. They subscribe $50,000 for flow through shares of a mining company under a 2026 agreement, the company renounces $50,000 of CEE that qualifies for the 15% credit, and they sell the shares in 2028 for $40,000. Federal tax only, with 2026 rates held flat and nothing else in the CCEE pool:

Year	Event	Federal tax effect
2026	Pays $50,000 for the shares	Cash out $50,000
2026	Deducts $50,000 of CEE on line 22400	Saves $50,000 × 33% = $16,500
2026	Claims 15% credit on $50,000	Saves $7,500
2027	The $7,500 credit comes off the CCEE pool, which is at nil	$7,500 of income × 33% = $2,475 owing
2028	Sells for $40,000 with a nil cost	$40,000 gain, $20,000 taxable × 33% = $6,600 owing
Total	Cash back $40,000, tax saved $24,000, tax paid $9,075	Net $4,925 ahead

The arithmetic: $16,500 plus $7,500, minus $2,475 and $6,600, is $14,925 of net federal tax savings against a $10,000 market loss on the shares, so your client is $4,925 ahead before provincial tax. The 2027 line comes from s.66.1(6): a credit deducted for an earlier year reduces the CCEE pool, and s.66.1(1) brings a negative pool into income laws-lois.justice.gc.ca. The 2028 line comes from s.38(a), which taxes half of a capital gain laws-lois.justice.gc.ca.

Where is break even? After the 2026 savings and the 2027 tax, your client still has $28,475 at risk ($50,000 minus $24,000 plus $2,475). Each sale dollar keeps $0.835 after the 16.5% federal tax on the gain, so the sale price that gets the money back is $28,475 divided by 0.835, about $34,100: a fall of roughly 32%. A client in a lower bracket gets less from the deduction but pays the same rate on the gain, so run the numbers at their own marginal rate.

Why is the whole sale price a capital gain?

Section 66.3(3) deems a flow through share acquired by a party to the agreement to have been acquired at a cost of nil laws-lois.justice.gc.ca. The CRA's wording: the gain on disposal is generally the entire sale price, even if no expenses were renounced canada.ca. That's the trade at the heart of the investment: an ordinary deduction now, a capital gain taxed at 50% later.

The gotcha is the identical property rule. Flow through shares are often the same class as the company's listed shares, and s.47(1)(b) averages the cost of identical properties laws-lois.justice.gc.ca. If your client also bought shares of that class on the market, the nil cost blends with the purchase price and lowers the cost base of every share they hold, so track the average on Schedule 3 rather than lot by lot.

If the company didn't spend the money in time, the CRA can reduce what was renounced. The company files a T101B and amended T101 slips canada.ca, and your client can be reassessed. When the cut follows a look back renunciation, s.161(6.2) holds off interest on the extra tax until April 30 of the next calendar year laws-lois.justice.gc.ca. The look back rule in s.66(12.66) lets an expense incurred in the following calendar year count as incurred on December 31 of the agreement year, which is why a renunciation can arrive in January to March for the prior year laws-lois.justice.gc.ca.

What happens when your client donates flow through shares?

Donating listed shares normally zeroes the gain under s.38(a.1), but flow through shares only partly escape. Section 40(12) deems a separate capital gain equal to the lesser of the exemption threshold and the gain on the actual disposition laws-lois.justice.gc.ca. The exemption threshold is, in short, what the shares would have cost your client without the nil cost rule, for flow through shares issued on or after March 22, 2011, less gains already taxed under this rule laws-lois.justice.gc.ca. The CRA's donation guide applies the same test canada.ca.

Example: your client paid $50,000 for flow through shares and donates them when they are worth $70,000. The whole $70,000 is a capital gain because the cost is nil. The deemed gain is the lesser of $50,000 and $70,000, so $50,000 is taxed at 50%: $25,000 of taxable capital gain. The other $20,000 gets the zero inclusion, and the donation receipt is for $70,000.

The full mechanics of donating listed securities, including Form T1170, are on our donating securities page.

How do AMT and CNIL claw back the flow through deduction?

Alternative minimum tax. Section 127.52(1)(e) limits deductions under sections 65, 66, 66.1, 66.2, 66.21 and 66.4 to your client's resource income, such as royalties from mineral, oil or gas production laws-lois.justice.gc.ca. A typical investor has none, so the whole CEE and CDE deduction is added back to adjusted taxable income. The sale gain also counts at 100% for AMT, and s.127.52(1)(d.2) gives donated flow through share class property its own 3/10 rule laws-lois.justice.gc.ca. The rate, the 2026 exemption and the carryforward are on our alternative minimum tax page.

The CRA's screening list for line 41700 doesn't name line 22400, though it does name the investment tax credit on line 41200 and any taxable capital gain canada.ca. For a large flow through deduction, run Form T691 rather than relying on that list.

CNIL. The investment expense definition in s.110.6(1) counts 50% of the resource deductions your client claims on expenses renounced to them laws-lois.justice.gc.ca. Half of every flow through deduction sits in cumulative net investment loss and cuts the capital gains deduction dollar for dollar. Clear it before a client sells qualified small business corporation shares.

Yes, as a carrying charge on line 22100, since the shares are bought to earn income. It's one of the items the CRA lists for minimum tax screening canada.ca, and it adds to CNIL too. See carrying charges and interest deductibility.

No. Only the original investor who signed the flow through agreement can deduct the renounced amounts canada.ca. A buyer on the market gets an ordinary share with an ordinary cost, and the nil cost rule in s.66.3(3) applies only to a party to the agreement laws-lois.justice.gc.ca.

No. Corporations aren't eligible for the federal credit or the provincial flow through credits, though a corporation can buy flow through shares and add the renounced expenses to its pools on Schedule 12 of the T2 canada.ca. Only an individual other than a trust gets the 15% or 30% rate laws-lois.justice.gc.ca.

Your client gets a T5013 instead of a T101, and claims the allocated resource expenses on their own return because the partnership can't deduct them canada.ca. The partnership must file a T5013 return once it holds flow through shares; see T5013 filing deadline and T5013 at risk amount.