Red Lake spearheads better flow-through deal

In January, the town of Red Lake, Ont., will begin lobbying the federal government to revamp flow-through share financing for mining exploration and development projects in Canada.

A revised flow-through financing option is the only way to save small towns hard-hit by a weakened mining sector, says Rick Smit, the Red Lake town counselor who is spearheading the proposal. In the new year, he will meet with Finance Minister Paul Martin to discuss boosting the flow-through tax writeoff to 140% from the current 100%.

“Our community, with recent provincial downsizing and a protracted strike at one of our local mines, is in an economic recession,” says Smit. He adds that investors are reluctant to support grassroots exploration projects because of recent mining scandals and poor metal prices. He believes a restructuring of the flow-through share mechanism would provide a much-needed incentive to junior mine financing.

Flow-through can have a dramatic impact on unemployment rates, especially in areas hardest hit by unemployment, says Smit.

Flow-through shares provide investors with tax breaks for investing in junior companies that perform exploration work. Flow-through investors provide direct funding to a company’s exploration and development work and are entitled to deduct these expenses from all other income. Under the flow-through arrangement, the federal government allows a tax writeoff of one dollar for every dollar spent. The program had its heyday in the 1980s when the federal government allowed two types of deductions: a 100% deduction on account of “Canadian exploration expense” and an additional 331/3% deduction on account of “mining exploration depletion allowance.” However, under tax reform introduced in June 1987, the 331/3% deduction was phased out.

Smit says boosting the writeoff to 140% would encourage “sustained economic development in Canada’s mining communities.”

He adds that he is seeking support from other municipalities and industry leaders.