Flow-through shares and the cleantech start-up

Tax talk putting you to sleep?
Tax talk putting you to sleep?

Flow-through shares… tax credits… income tax act regulations section… maximizing investor potential… qualifying transactions, blah, … Zzzz zzzzzzzzzz. Snore!

Wow, nothing can put a pragmatic, action-oriented cleantech entrepreneur to sleep faster than the tax code. But wake up, cleantech entrepreneurs, the intricacies of flow-through shares might be just the trick to land that key investor.

Here’s how it works. Start-ups pay no taxes, at least until they start to pull in those elusive profits. So their expenses are nothing but dead weight, at least from a tax perspective. There’s no income to reduce! A flow-through share lets a company pass some expenses through to an investor, so that investor can claim a reduction on the taxes they pay. Assuming the investor is a profitable company, or income-tax paying individual, the expenses are suddenly worth something today, rather than tomorrow.

So the idea is to make buying flow-through shares in a start-up, risky cleantech company a bit more enticing to those with the money – profit-producers!

Not all companies can do it. Originally designed for the resource sector – encouraging big, profitable companies to invest in risky mining start-ups – it has been extended to select renewable energy sectors, wind in particular.

Now comes the hard part – talk to a financial advisor to find out what sectors, expenses and companies are eligible. And when they start talking tax code, keep your head up and your ears open. They will be saying something you need to hear!