THE TAX BENEFITS OF FLOW-THROUGH SHARE INVESTING
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Investing in flow-through shares has been a popular tax reduction strategy for several years in Canada. Flow-through shares allow the issuing company to renounce or “flow through” tax expenses associated with Canadian exploration activities to investors. Investors in flow-through shares can deduct the expenses in calculating their own taxable income. This is a win-win scenario for the companies who want to raise capital to fund exploration and for investors looking to reduce their income taxes.
Donations of publicly listed flow-through shares
An additional tax strategy has been available to philanthropic flow-through share investors which allowed for the exemption from capital gains tax on the donation of publicly traded flow-through shares to a registered charity.
Federal Budget 2011 proposes changes to this capital gains tax exemption for any donations of flow-through shares entered into on or after March 22, 2011. The exemption will only be allowed to the extent that cumulative capital gains in respect of the disposition of shares exceed the original cost of the flow-through shares.
While not yet passed into law, it can be expected that these new taxation rules will be implemented in the near future. If an investor buys a flow-through share and then subsequently donates the share “in kind” to a charity, they will continue to benefit from the exploration tax and charitable donation tax credits.
Flow-through shares that were purchased prior to March 22, 2011 are not affected by the proposed changes in Budget 2011. Investors who are considering a charitable donation should be aware of the new rules and the impact they may have on their future tax planning. However, even under the new proposal, gifting of eligible flow-through shares continues to be a tax effective way of making a charitable donation.
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Let us help you accomplish your philanthropic ambitions with a tax-efficient charitable giving strategy. If you would like more information on flow-through share investing or a details on creating a legacy with the Richardson GMP Charitable Giving Program, contact your Richardson GMP Investment Advisor today.