Fasken helps junior mining desk with flow-through shares submission to govt

20th July 2020 By: Marleny Arnoldi - Creamer Media Online Writer

Mining law firm Fasken is helping the Minerals Council South Africa’s Junior and Emerging Miners' Desk compile a submission to the National Treasury regarding the introduction of a local tax incentive.

The local tax incentive is based on the Canadian flow-through shares (FTS) model, proposing tax incentives for purchases of equity in entities undertaking exploration activities.

The Fasken team includes corporate and commercial partner Dimitri Cavvadas and tax partner Conor McFadden, who are collaborating with the Junior and Emerging Miners’ Desk as part of an ongoing initiative to understand and unpack tax incentives and opportunities for the South African mining sector based on the Canadian FTS principle.

Canada’s tax code allows the use of flow-through shares for mining and oil and gas companies on the assumption that they are a good way to spur new productive exploration.

An FTS is a type of share issued by a corporation to a taxpayer, pursuant to an agreement with the corporation under which the issuing corporation agrees to incur eligible exploration expenses in an amount up to the consideration paid by the taxpayer for the shares.

The corporation “renounces” to the taxpayer an amount in respect of the expenditures so that the exploration and development expenses are considered to be the taxpayer's expenses for tax purposes.

As a result of the corporation renouncing the expenses, the shareholder can deduct the expenses as if incurred directly.