Back in the 50’s, about the same time the Leafs won their last Stanley Cup, an initiative was written up by the politicians of the day to spur on investment in Canadian resources.
The initiative, called Flow Through Shares, allowed companies to issue a special class of shares that carry with it some significant tax benefits for the investors. An investor may deduct the amount that they have invested from their income, hence saving some tax right off the bat.
Upon exit or sale, the same investor would receive a capital gain equal to the amount of the sale price. The reason for this is because the cost of the share, or ACB (Adjusted Cost Base) is zero.
This reminds me of the mechanic in the Fram Filter commercial. Pay me now, or pay me later, but you are going to pay me. The taxman will receive his share of tax upon sale, while giving up some deductions at the front end.
There are two basic structures when looking at flow through shares; single company shares and limited partnerships. The obvious strength of the limited partnership is that it has multiple shares in the portfolio, thus theoretically bringing down the overall risk.
Whether we are looking at mining, oil and gas, or alternative energy, there is volatility in the resource sector. Besides having a professional portfolio manager looking after your basket of flow through shares, another way to manage the risk is to have an ongoing and consistent investment strategy. One such strategy is to purchase a flow through share offering on a yearly basis. After a number of years, and various ebbs and flows, the portfolio will even out. If you are fortunate, you will even start to use the tax savings from previous years as your investment.
As always, a qualified exempt market professional should review any exempt market offering you are considering.
To check out a video on the topic, please click on the image below:
Marty Gunderson is an expert who helps companies navigate through the Exempt Market. He has served in a variety of leadership positions in the industry, from sales to issuer to dealer. He is the founder of www.BetterReturns.ca, a site that highlights a few quality exempt market offerings. To contact Marty, please email marty (at) idealeader.ca