Looking For Additional Tax Breaks?

Jonathan Adomait |

If you're a high income earner in Canada, you might be wondering what other options there are for you to reduce taxes beyond the regular RRSP contributions. Well, today we will be discussing Flow Through Shares - one of the interesting and effectively ways of reducing your tax bill even further.

I've discussed this strategy in a video format previously, and if you're interested in watching this please let me know.

The strategy can be summarized by the following key steps:

  1. Resource Company Issues Shares: A resource exploration or development company issues flow-through shares to raise capital for their projects. These shares are typically issued at a premium to the market price.
  2. Investor Purchases Shares: Investors, often seeking tax benefits, purchase these shares directly from the company. The investor becomes a shareholder and assumes the associated exploration and development expenses.
  3. Tax Deductions for Investors: Investors can deduct the full value of their flow-through share investment from their taxable income, often in the year of purchase or over a few years, depending on the company's qualifying expenditures. 
  4. Resource Development: The funds raised from the sale of flow-through shares are exclusively used for resource exploration and development. This contributes to the growth of Canada's natural resource sector.

One of the risks of this strategy is that the investments are highly volatile, and even with tax deductions of over 100% of your purchase amount, it's possible you may not come out ahead. A unique method exists which addresses some of these concerns for investors.

I'm going to call this method "Flow Through Shares with Liquidity". Under this method, you arrange to purchase the flow through shares and also arrange to sell the shares to a liquidity partner at a discount immediately after acquiring the shares. Under this arrangement, you (the investor) will receive the tax deductions and credits from the flow through shares, and the liquidity partner receives the benefit of buying the shares off you at a discount. A win-win event. Properly structured, you will receive an after-tax net benefit from the tax deductions even when disposing of your shares at a loss. 

If you're looking for additional tax breaks and unsure if either of these strategies are right for you, please let me know and we can discuss it together. There are only a couple months left to participate in these options for 2023, so please reach out ASAP.



Jonathan Adomait
Financial Advisor | CFP, CIM, B.Eng