Mining is one of British Columbia’s most important industries and the provincial government is actively supporting its expansion. The Province is taking steps to streamline regulation, accelerate permitting and improve the investment climate, with key changes specifically designed to increase mineral exploration and mining in the province. Leading the way is the 20 per cent flow-through share tax credit, introduced in July, 2001.
Super Flow-through Shares: A unique tax shelter
Super Flow-Through Shares have become increasingly popular among sophisticated investors seeking to minimize their taxes. They remain one of the few legitimate tax shelters available to Canadians and offer investors a tax deduction of up to 150 per cent (depending on what province you are from) of their initial investment. Flow-through shares are approved by the Canada Revenue Agency (CRA) and are an ideal investment for (a) high net worth or high income individuals, (b) those who wish to withdraw funds from RRSP/RRIFs in a tax-effective manner, or (c) anyone faced with a high current or past tax bill (including corporations).
What are Super “Flow-Through” Shares ( SFTS ):
SFTS are common shares issued by Canadian resource 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 the exploration (CEE)…basically 100 per cent of all money raised through flow-through must be spent on the property.
How do they work? And what are the benefits for you?
Flow-through shares are issued by resource-based companies that are involved in the exploration and development of Canadian natural resources. In order to promote the development of the sector, the Federal Government provides significant tax incentives to investors who purchase the flow-through shares of the resource-based companies. The program has been available since the 1950s and has stood the test of time. It is right in the Tax Act.
Investors may therefore deduct the cost of flow-through shares from taxable income, which reduces their “capital 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, effectively converting taxable income to capital gains which is taxable at 50 per cent of the investors marginal tax rate (please see below example for British Columbia).
If you invested $1000 in flow-through shares:
Amount of Invest: $1,000.00
Less: tax benefit of deduction of flow-through shares – federal ($290)
Less: tax benefit of deduction of flow-through shares – provincial ($147)
Less: 15 per cent non-refundable federal investment tax credit ($105)
Less: 30 per cent non-refundable provincial tax credit ($300)
Add: Income Tax on inclusion of federal tax credit: $46
Add: Income Tax on inclusion of Provincial tax credit: $131
Net Cost of $1,000 investment in flow-through shares $335.
For more information, contact:
Ministry of Provincial Revenue, Income Taxation Branch
PO Box 9434, Stn Prov Govt, 5th Floor, 1802 Douglas Street
Victoria, British Columbia V8W 9V3
Phone: 250 387-5754 Fax: 250 356-9243
or visit the Ministry of Energy and Mines Web site www.gov.bc.ca/em