B.C. Mining Flow-Through Share Tax Credit
The British Columbia Mining Flow-Through Share Tax Credit (MFTS) allows individuals who invest in eligible flow-through shares to claim a nonrefundable provincial tax credit. British Columbia renewed this credit in 2015 and extended it through Dec. 31, 2016.
What Are Flow-Through Shares?
Flow-through shares are issued by mining or energy companies to help finance exploration or projects. In the purchase agreement for these shares, the investor agrees to buy them, and the issuing corporation agrees to transfer certain expenses to the individual. In British Columbia, you may claim a tax credit on the expenses transferred to you via a mining flow-through share.
If you purchase flow-through shares, the corporation you purchased the shares from should send you Slip T101, Statement of Resource Expenses, at the end of each year. This slip details the amount of expenditures that were passed to you throughout the year.
Which Flow-Through Shares Qualify for the MFTS Tax Credit?
In British Columbia, the MFTS Tax Credit does not apply to all flow-through shares. Rather, it only applies to flow-through shares sold by corporations that conduct mining exploration in British Columbia. For example, if you buy flow-through shares from a renewable energy company, the expenditures related to those shares are not eligible for this credit.
The Ministry of Finance urges investors to talk with a qualified advisor before buying any flow-through shares, as the tax considerations associated with these investments can be complicated.
How Much Is the MFTS Tax Credit?
The MFTS Tax Credit is worth 20% of eligible expenditures. For example, if you receive your T101 and it lists $2,000 of transferred expenditures, your tax credit is $400. Note your tax credit is not based on the purchase price of the flow-through shares but only on the amount of expenditures transferred to you.
How Do You Claim the MFTS Tax Credit?
To calculate your credit, use Form T1231, British Columbia Mining Flow-Through Share Tax Credit. Then transfer the amount of your credit to line 74 of Form BC428, British Columbia Tax. Finally, send these forms to the Canada Revenue Agency along with your T1 Individual Income Tax Return. You do not have to submit your T101 with your return, but you must save it with your records for at least six years.
If you do not submit the T1231 form with your federal income tax return, you may send it separately. However, you must submit it within one year of the tax filing due date for the year in which the expenses occurred. To explain, if expenses were transferred to you in 2016, the filing due date for that year is April 30, 2017. As a result, you must submit your T1231 by April 30, 2018. Even if you do not plan to claim the credit that year, you must still file this form for informational purposes. If you do not file the form by this deadline, you cannot carry the credits forward or backward.
How Do You Carry MFTS Tax Credits Back or Forward?
MFTS Tax Credits are nonrefundable. This means they cannot create a refund. For example, if you qualify for an MFTS credit of $5,000 and you only owe $3,000 in provincial income tax, you have $2,000 remaining. While you cannot claim this amount as a refund, you may roll it forward or backward.
Form T1231 offers you the option of carrying this credit forward or backward, and it guides you through the calculations. You may carry the credit forward 10 years or back three years. To continue with the above example, if you owed tax in any of the last three tax years, you may want to roll your $2,000 in unused credits onto one of those tax returns. However, if you anticipate earning more money sometime in the next decade, you can save the credits to offset your provincial income tax in one of those years.
You don’t have to carry forward or roll back all of your MFTS credits to the same year. Rather, you can divvy up the credit between multiple years depending on what works best in your situation.
What Are the MFTS Tax Credit Rules for Partnerships?
Both partnerships and individuals may buy flow-through shares from mining companies. However, only individuals may claim the MFTS Tax Credit. If your partnership invested in eligible shares, you may claim this credit based on your individual portion of the investment, but you must note the amount claimed by each partner on your partnership’s T5013, Statement of Partnership Income.