TORONTO — A made-in-Canada tax scheme that’s been a boon for mining companies could soon be used to try and spur investment in tech startups in the country.

The tax policy, known as flow-through shares, was amongst those included in Prime Minister Mark Carney’s campaign platform in April. If made official policy, flow-through shares would be used to lure private investors to back research and development at early-stage companies in the same way investors fund exploration at potential mining sites. Backers get shares and, potentially, a healthy return, while early-stage companies get a much-needed injection of cash. 

Policymakers, business leaders and entrepreneurs have agonized over how to compel the private sector to invest more in innovative Canadian firms—money needed to propel companies from startup to scaleup with the ultimate goal of boosting the country’s wealth and productivity. 

The tax change is just a campaign promise at this point, and the government will need to formally propose legislation and get it passed by Parliament before it becomes reality. But proponents of flow-through shares say the tool can help solve a slate of challenges facing Canada’s innovation sector. They point to struggles accessing scarce early-stage capital and maintaining domestic ownership of companies at a time when Canada’s sovereignty is top of mind. “The new cabinet was just sworn in last week. The government will have more to say in due course,” said Finance Department deputy spokesperson Marie-France Faucher. 

Under the tax policy, firms pass on the cost of things like research and exploration to private investors in the form of company shares. Investors can then claim a tax deduction on these shares and, ideally, collect a return on their investment down the road. 

Canada’s resource-sector companies have used flow-through shares to fuel their growth since the tool was introduced in 1954. The shares have been a significant source of equity for mining and petroleum companies and have spurred spending on drilling and exploration, according to government progress reports. A 1994 report singled out the economies of Alberta, Ontario, British Columbia and Quebec as benefactors of flow-through shares. 

“By any measure, the program has been a success; it has helped make Canada a global leader in resource financing,” according to a 2010 report by the Coalition for Action on Innovation in Canada, a business group led by former Liberal cabinet minister John Manley and Paul Lucas, then-president and CEO of pharmaceutical company GSK, which recommended using flow-through shares to stimulate innovation beyond the resource sector. 

“It created a vibrant industry in Canada for mining and for oil and gas,” said Rick Sutin, a lawyer and business advisor who’s long been in favour of expanding the policy.

David Perry, who runs Perry-Martel International, an executive talent recruitment firm based in Ottawa, said the stakes around the proposed policy are high. “Canada’s economy hinges on backing our innovators with the right capital incentives and leadership,” he said, pointing to flow-through shares as a key to solving the country’s capital and talent challenges. 

Carney isn’t the first political leader to promise flow-throughs for the innovation sector. Former Conservative party leader Erin O’Toole pledged in his 2021 election campaign against then-prime minister Justin Trudeau to extend the initiative to tech companies. His pitch to voters was that they could reduce their taxes by investing some of their income in innovative firms of their choosing, helping grow Canada’s tech sector and potentially enjoying some of the future upside. 

O’Toole said despite tech-industry advocates pressing for flow-through shares, governments have been reluctant to expand the policy because it would erode the tax base. “Finance has hated flow-throughs since they were first used,” he said. “It does hollow out their ability to collect.” The tool has also attracted criticism for being a tax shelter for the wealthy—particularly for investors that donate a portion of their flow-through shares to a charity, amplifying their tax reductions. 

O’Toole’s argument, however, is that the government would end up doling out tax revenue to tech companies anyway, through programs like the innovation superclusters or the Strategic Innovation Fund. So why not let the private sector decide which companies their tax money would fund? 

The Council for Canadian Innovators (CCI) has endorsed the idea for years. CCI president Benjamin Bergen said it fits with the lobby group’s mandate to boost funding for domestic, innovative firms. “Creating a favourable tax treatment allows for individuals to invest in companies that are high risk,” he said. “This is just another tool that can be used to help quickly deploy [money].” 

Suzanne Grant, an executive director at the Capital Angel Network—an organization that connects investors with early-stage startups—said flow-throughs could be a windfall for tech companies just starting out, which tend to be the riskiest bets for investors. These companies have borne the brunt of the venture-capital slowdown in recent years—a retrenchment in deal making that reached a five-year low in the first quarter of 2025, according to the Canadian Venture Capital & Private Equity Association. 

Grant said the Liberal government’s proposed capital gains increase last year—which has since been reversed—is in part responsible for dampening investment in the sector. “Investors felt they were being penalized or there were obstacles in their way,” she said. Expanding flow-through shares sends the opposite message, said Grant, by incentivizing investment into early-stage companies. “It takes a bit of the edge off those high-risk decisions,” she said. 

O’Toole said Carney’s pledge to expand the tax policy now reflects a “seismic shift” in attitudes among policymakers and the public. The change in mood is largely a response to economic threats from the U.S., said O’Toole. “Old approaches, whether it’s on pipelines or whether it’s on finances, it’s all a different paradigm now.” 

Not everyone sees flow-throughs as a silver bullet for the innovation sector’s capital crunch. John Ruffolo, founder and managing partner of Maverix Private Equity, said the most promising companies will likely opt for traditional venture capital funding rounds rather than sell piecemeal flow-through shares over an extended period. He said the risk with flow-throughs may still be too high for retail investors, who are effectively gambling with some of their money. “If the company does very well, you just scored a home run,” he said, “but a lot of them go to zero.” 

Allen Lau, co-founder and operating partner at Two Small Fish Ventures, said flow-through shares will likely take some financial pressure off companies, but he doesn’t expect the tool to be a substitute for venture capital. Startups struggling to raise money now may therefore continue having a hard time. 

How companies or projects qualify for flow-throughs will have a big impact on whether the initiative is successful, Lau argued. “Is it a low-friction process, or does it come with a high administrative burden that could negate the benefits?” he said. “That’s the billion-dollar question.”

Startups in sectors like biotech and cleantech may be best positioned to benefit from flow-through shares, said Ruffolo. Canada is known for having strong startups in these sectors, but similar to mining and resource companies, they have large upfront costs and often long R&D periods before generating revenue. 

“Anything you can do that increases the availability of capital is a good thing,” said Ruffolo, but, he added, it’s not going to solve the access-to-capital problem for Canada’s tech sector. “I don’t think a single thing will. A bunch of things combined will,” he said. “But this is definitely one of those tools.”