CRA indicates that non-flow through shares can be part of a flow-through share class

Where a taxpayer otherwise has realized a nil taxable capital gain under s. 38(a.1)(i) on the donation of shares, s. 40(12) provides that if those shares were included in a “flow-through share class,” then the taxpayer is deemed to have a capital gain generally equal to “exemption threshold” in respect of that flow-through share class (generally, the pool of actual (commercial) costs of flow-through shares issued to the taxpayer).

CRA indicated that non-flow through shares issued to a taxpayer are tainted as being part of a flow-through share class if any share in that class held by another person is a flow-through share. Although this sounds ominous, CRA went on to indicate that the taxpayer’s exemption threshold in this situation would be nil “it is necessary for the taxpayer to have acquired a flow-through share (or certain partnership interests …) in order for a taxpayer to have an exemption threshold in respect of a flow-through share class of property to which subsection 40(12) of the Act would apply.” Thus the capital gain on the donation of such shares to a registered charity would not be increased under s. 40(12).

Neal Armstrong. Summary of 19 January 2018 External T.I. 2017-0683501E5 under s. 40(12).