Invest tax-efficiently with flow-through shares

Tax Planning

An important part of my job is to help investors invest tax-efficiently. If tax-efficient investing is of interest to you, you may want to consider an investment in "flow-through shares."

Flow-through shares are issued by exploration or mining companies specifically to finance exploration activities such as ground sampling, geophysics and drilling. Often such companies have little or no current income from which to deduct such expenses, and little tax payable from which to deduct associated tax credits. However, the Income Tax Act permits them to "flow" these deductions and credits through to investors. Usually, the entire investment is deductible in the year of investment, resulting in a zero adjusted cost base. Taxpayers can use these to reduce tax liabilities, however, they are most effective for taxpayers in the highest marginal tax bracket.

Often investors invest in flow-through shares through "flow-through limited partnerships." These provide a certain degree of diversification, as the limited partners pool their capital to invest in a portfolio of various flow-through issues. They also provide the expertise of an experienced general partner, who selects and manages the portfolio. The deductions and tax credits flowed through to the partnership are subsequently allocated among the partners.

Even if a security is flow-through, it is not necessarily a suitable investment. Many flow-through investment opportunities are on the market today. Contact a professional investment advisor, who is experienced in flow-through investments, to help you select an appropriate investment for your portfolio.

Daniel Saikaley, CA CFP EPC
Investment Advisor
CIBC Wood Gundy
E-mail: daniel.saikaley@cibc.ca.
Website: www.danielsaikaley.com.