Flow Through Tax Shelters

With the tax season fresh on our heels, we may be thinking more and more about how much tax we in fact contribute each year. This likely leaves you feeling frustrated, knowing that there are very few tax saving opportunities left. Amongst the few tax saving opportunities are Government Incentive Securities (GIS). These are securities that the Government of Canada encourages investment in and grants tax credits as a result of. These GISs are usually in the form of Flow-Through Shares. Flow-through shares are common shares issued by Canadian oil and gas, mining or renewable energy companies on a “flow-through” basis. They have the same characteristics as other common shares of the companies that offer them, with one important difference: their issue proceeds must be spent on exploration, and the tax deductions generated must be transferred by the issuer to the initial purchasers of the shares. Investors may therefore deduct the cost of flow-through shares from taxable income, which reduces their “money at risk” by the resulting tax savings. If fully taken, the deductions reduce the initial investors’ cost base of the shares for tax purposes to zero, and their sale proceeds are therefore taxed as capital gains.

Why might you want to invest in Flow-through shares?

1. Increase after tax cash flow
2. Decrease tax owed in the year of a large capital gain
3. Accumulated wealth to provide retirement income
4. Shelter lump sums of income from taxes
5. Crystallize available capital losses
6. Make tax effective charitable donations