Why Flow-through Should Be Part Of Your Tax Strategy

Jesse Godfrey, VP, Retail Sales


One of the main components of any successful tax strategy is the utilization of tax deferral or tax friendly accounts such as RRSPs, RESPs, and TFSA, each of which mitigate tax obligations in different ways. While these are great tools, there are some shortcomings that are attributed to each account type. For example, with RRSP accounts, if you continue to have a high income in your retirement years, you will be withdrawing those funds at the highest marginal rate. This is especially the case for high-net-worth individuals. The good news is, there are other tax strategies to leverage instead such as charitable donations, principal resident exemption, life insurance, and flow-through shares. Although often overlooked and underutilized, a flow through share is a type of common share that permits the initial purchaser to claim a tax deduction equal to the amount invested. In addition to regular flow through shares that give 100 per cent deduction for exploration company investments, the federal mineral exploration tax credit (METC) is 15 per cent non-refundable tax credit for grass root exploration. Furthermore, there are several provinces which provide additional incentives that further increase the net benefit to the investor. Flowthrough shares allow public companies to transfer to investors certain exploration expenditures. The federal 2022 budget proposed to introduce a new 30 percent critical mineral exploration tax credit (CMETC) for specified minerals. The specified minerals that would be eligible for CMETC are copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals, and uranium. Flow-through is a unique investment vehicle specific to Canada’s resource sector, and we believe it should be considered for all portfolios and individual tax planning strategies. For more information on how you incorporate flow-through into your tax strategy, be sure to reach out to a qualified tax representative or reach out to your contact at Red Cloud.



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