# Flow-through shares



## ssimps (Dec 8, 2009)

Anyone have any experience with these, or the companies that sell fund type products that are made of a set of flow-through shares?

100% tax deductible seems to good to be true, so what gives?


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## Oldroe (Sep 18, 2009)

Jr. oil and gas flow through limit partnerships. Have seen some that claim 100%, most get 85% the first year then a little more the 2nd and if they make money convert to a mutual fund with a holding period after 3 years.

Not many make money but it's not unheard of. Jovi funds just converted one to mutual. Front Street Capital would get a serious look from me and Dominion is the largest.

I tried to get some help when my buy out package was being taxed. Good Luck


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## Rickson9 (Apr 9, 2009)

It's not worth it. The fees and mandatory holding period will wipe out your tax break and then some. If the investor were allowed to choose their own security it may have been worth it.


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## Oldroe (Sep 18, 2009)

They are a tax strategy that might turn into a very good investment. If you are going to pay the tax reducing it to 10-15% is good.

These are the guys that look at geology and drill holes with very poor success so don't put your money in.


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## leslie (May 25, 2009)

http://www.firstasset.com/products/


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## Y&T2010 (Dec 29, 2009)

I found flow through shares not worth it. 

I invested $5000 in an oil and gas flow through share and got about $1500 back in tax deductions, but it's now worth about $1000. (So I'm down $2500). The "wait" period takes too long and it's 100% taxed as capital gains when you sell it, even if it's at a loss.

I'm not a big fan.


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## Oldroe (Sep 18, 2009)

I would never look at flow threw to invest. If you were going to pay the gov. $5000 for a tax bill then I would be buying.

Was there another reason you didn't get the full tax return.

After 2 years they are normally worthless, only on rare occasions they make money and are rolled into a mutual fund.


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## ssimps (Dec 8, 2009)

Y&T2010 said:


> I invested $5000 in an oil and gas flow through share and got about $1500 back in tax deductions,


I thought flow through shares hgave you 100+ (or more depending on province) tax break / return; why did you only get 1500 from a 5K investment?

Thanks again.


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## Y&T2010 (Dec 29, 2009)

Oldroe said:


> I would never look at flow threw to invest. If you were going to pay the gov. $5000 for a tax bill then I would be buying.
> 
> Was there another reason you didn't get the full tax return.
> 
> After 2 years they are normally worthless, only on rare occasions they make money and are rolled into a mutual fund.


Sorry guys! I think I was half asleep when i was posting, sometimes I don't make sense when it's late!

You're right, I did get 100% in tax deductions, my marginal rate was about 30%, so i meant to say I got $1500 back. The taxes in BC aren't as bad here as say, in Newfoundland.
I think it's only SOMEWHAT worth it if you are at the top tax bracket.

Even then, if you invested $5000 and got $2250 back in your taxes (if you were at a hypothetical 45% tax bracket) you would still have $2750 "at risk".

Yes, I agree with the worthlessness of it...!
The financial advisor I bought it from told me she bought them "every year" and that she thought they were the best thing since sliced bread.


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## ssimps (Dec 8, 2009)

Y&T2010 said:


> You're right, I did get 100% in tax deductions, my marginal rate was about 30%, so i meant to say I got $1500 back.
> ....
> The financial advisor I bought it from told me she bought them "every year" and that she thought they were the best thing since sliced bread.


Thanks for the clarification; and sorry to see another financial advisor strikes again; wonder what she got paid selling them to you?


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## Rickson9 (Apr 9, 2009)

Y&T2010 said:


> The financial advisor I bought it from told me she bought them "every year" and that she thought they were the best thing since sliced bread.


If the bread had mould she would be right.


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## WhiteRockFinancialPlanner (Jan 3, 2010)

*Flow Through Shares*

These work best if you are in the highest tax bracket. They work especially well if you do sizeable charitable donations every year ($5,000 or more) and earn a very healthy income. 

If you give to charity or church on a regular or substantial basis ($5,000 or more per year) the following is something that you should seriously consider to replace your current mode of giving, namely writing a cheque and only getting the donation tax credit. Using this strategy will still put the same amount of cash in the hands of your designated charity or church, however it can cost you a lot less.

First, I must state at the outset that the tax savings does depend on your province of residence, your marginal tax rate, your advisor and what investment that you ultimately use for this purpose. That will be between you and your Financial Advisor.

What I call the “Double Dip Donation Strategy” starts with the investment in a “Super Flow Through Share” offering. This can save you up to $6,180 on a minimum $10,000 investment. In other words, you are out of pocket approximately $3,800. 

Flow through shares are nothing new. They have been a huge part of the Canadian economy for over 50 years, longer than RRSP’s. However, unlike RRSP contributions you must make a Flow Through Share investment before December 31st to have the tax deductions and credits apply to the current tax year. 

If you simply want the tax savings and hold the investment for yourself then you can stop there. You will have made a $10,000 investment for a net cost of only $3,820.

If you choose to take a second step and use your investment as a charitable donation you will save up to an additional $4,370. The $6,180 tax savings for investing and then $4,370 tax savings for donating. For the donation part however, you will have to wait for the flow through shares to convert to a mutual fund. It is at this time you can gift the shares to the charity and the can be simultaneously sold for cash by the charity. 

In other words you have received just over $10,000 back in tax savings and the charity or church you have given to has received $10,000 in cash. This of course assumes that the flow through share offering you have participated in is worth the same amount. 

For a regular giver to a charitable cause or church this is considerably better than simply donating cash which produces a total tax savings of only $4,370. 

I use the “Super Flow Through Share Donation Strategy” myself and will continue to do so for years to follow or until the government changes the tax rules. Multiply the tax savings by the number of years you will have breath and we are talking potentially hundreds of thousands of dollars in extra dollars for your (or your kids).

NOTE: The above tax saving figures are based on the highest tax bracket in BC ($123,000+ of taxable income). The tax savings are still very compelling at the over $70,000 taxable income level and can still be attractive for taxable incomes over $38,000.


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## ssimps (Dec 8, 2009)

WhiteRockFinancialPlanner said:


> What I call the “Double Dip Donation Strategy” starts with the investment in a “Super Flow Through Share” offering.
> 
> ...
> 
> ...


If this is legal in Ontario it sounds very interesting to me and my financial adviser (me); who both are always looking for ways to reduce my tax rate and help out others at the same time.  But it sounds almost to good to be true.

I've got time to look into it, since I could only do it for 2010 based on your details.

One issue I see is the point: 

"assumes that the flow through share offering you have participated in is worth the same amount. "

What is the probability of this; based on other posts it is very low. Since you have been doing this, are you investing in flow through products that are at least breaking even at conversion, and if so, can you give some specific examples? I understand past performance is no indicator of future performance.

Thanks very much for the interesting idea.


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## Y&T2010 (Dec 29, 2009)

WhiteRockFinancialPlanner said:


> If you choose to take a second step and use your investment as a charitable donation you will save up to an additional $4,370. The $6,180 tax savings for investing and then $4,370 tax savings for donating. For the donation part however, you will have to wait for the flow through shares to convert to a mutual fund. It is at this time you can gift the shares to the charity and the can be simultaneously sold for cash by the charity.
> 
> In other words you have received just over $10,000 back in tax savings and the charity or church you have given to has received $10,000 in cash. This of course assumes that the flow through share offering you have participated in is worth the same amount.
> 
> ...


Hmm interesting post, but again, it assumes that the flow through share are worth the same amount as previous. It seems more often than not, they are not worth the same amount. My $5000 investment is worth $1800 right now.

Your donation strategy does sound like a good idea. My flow through is currently in mutual fund status, so I'll look into it for the 2010 tax year.

Thanks!


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## Oldroe (Sep 18, 2009)

You got 100% tax return and now it's worth $1800.00 that's $6800. Guess I'm still missing something.


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## ssimps (Dec 8, 2009)

Oldroe said:


> You got 100% tax return and now it's worth $1800.00 that's $6800. Guess I'm still missing something.


I think he means the current value of what was purchased @ $5,000 is now $1,800. 

He did not get $5000 back from the gov when he purchased the shares, he got got 100% reduction on taxable income (same way RRSP works), so about $1,500 based on his tax bracket.

So his total value from the 5K investment = 1,800+1,500 = $3,300, which is still a loss in the end.

That is my take at least.


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## CanadianCapitalist (Mar 31, 2009)

ssimps said:


> Anyone have any experience with these, or the companies that sell fund type products that are made of a set of flow-through shares?
> 
> 100% tax deductible seems to good to be true, so what gives?


I looked at these funds when I got laid off and received a significant severance package. I decided not to invest because if you ignore the tax break for a moment and think about the investment on its own merits, would you still invest? Considering that the stocks are primarily junior exploration companies that often have no profits, no revenues etc., it becomes clear that these are not investments, just speculative vehicles.


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## Oldroe (Sep 18, 2009)

I recently took my pension with a by out, and years when I take profits from the markets and will write a check to gov. (this year).

If I put $10,000 in flow threw and it's taken off my taxable income that is $4600 in tax return. I would rather have 46% of a check I'm sending to the tax people than zero.

I agree they are not great investments, if it does get moved to mutual fund and is only worth 50% that's bonus money.


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## WhiteRockFinancialPlanner (Jan 3, 2010)

*Flow Through Shares as an investment*

Flow throughs are "speculative" investments. You are investing in a "blind pool". They aren't liquid. However...

When you get over 60% back in tax savings you take out 60% of the risk. You're "at risk capital" can be as little as 39 cents on the dollar.

What people have experienced over the past 2 years was a very abnormal event. The worst I saw from what an investor purchased (including me) was approximately a 70% decline. Again, going through one of the worst declines since the 30's. On the otherside of the coin I have seen a holding period as short as 3 months with an approximate 15% gain and all the tax savings. Normally a hold period is closer to 2 years.

Some people invest in mining companies without doing any real research and no tax benefits. Flow through shares are just another way to invest in mining companies but taking out much of the risk with the tax savings. If you make charitable donations and earn upwards of $100,000 per year, invest in flow through shares methodically, over a long period of time, you can have your charitable donations cost you very little.


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## Y&T2010 (Dec 29, 2009)

ssimps said:


> I think he means the current value of what was purchased @ $5,000 is now $1,800.
> 
> He did not get $5000 back from the gov when he purchased the shares, he got got 100% reduction on taxable income (same way RRSP works), so about $1,500 based on his tax bracket.
> 
> ...


Yes, that is what I meant! Thanks for the clarification. 

I'm a 'she' not a 'he' by the way. 

Yes, so I'm at a loss of 5000-3300= 1700.

I agree WhiteRockFinancialPlanner, that the past two years have not been good at all for flow through shares, I guess I just got in with bad timing... Was burned, and am hesitant to go back.


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## Rickson9 (Apr 9, 2009)

Y&T2010 said:


> I guess I just got in with bad timing... Was burned, and am hesitant to go back.


This is possible, but it is also possible that you got in with lack of investment knowledge as well. Or both.


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## ssimps (Dec 8, 2009)

Rickson9 said:


> This is possible, but it is also possible that you got in with lack of investment knowledge as well. Or both.


Given the posters explaination of what happened, she got in because her adviser told her that it was the way to go and she trusted the advisers knowledge (that is what they are paid for is it not). So the only lack of knowledge she had at the time was that advisers are just people too, and can be wrong about what will happen in the market future, and likely also have conflicting agenda's / interests. You seemed to agree with this in your earlier post on this thread. 

This is why I say dump the adviser and go 'open-finance' and learn yourself (i.e. books, articles, forums like list, and blogs) where people share experiences and insight and hopefully are as open and honest as possible about their successes and their failures. This takes time though and some of us have started later than others and likely some can pick up the skills faster than others.

Regardless of a persons knowledge level, very few people can predict for sure what the market or even what a stock is going to do short to medium term, maybe even long term. 

How many people sold their stocks before the 2008 crash because they knew it was coming and had the disipline to sell, so that they could buy the same stocks within 6 - 9 months at 50% discount, not many % I say. I think the stats also show that. 

lesie has suggested (s)he did move assets before the crash, so maybe (s)he is one of the few that truly has the insight to time the markets. Based on leslie's posts, (s)he does seem to know a lot and have real processes and data mining techniques.


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## Y&T2010 (Dec 29, 2009)

ssimps said:


> Given the posters explaination of what happened, she got in because her adviser told her that it was the way to go and she trusted the advisers knowledge (that is what they are paid for is it not). So the only lack of knowledge she had at the time was that advisers are just people too, and can be wrong about what will happen in the market future, and likely also have conflicting agenda's / interests. You seemed to agree with this in your earlier post on this thread.
> 
> This is why I say dump the adviser and go 'open-finance' and learn yourself (i.e. books, articles, forums like list, and blogs) where people share experiences and insight and hopefully are as open and honest as possible about their successes and their failures. This takes time though and some of us have started later than others and likely some can pick up the skills faster than others.
> 
> ...


I agree with going "open finance" and learning yourself. It's your own hard earned money, no one's going to take as good care of it as you would yourself.

The financial advisors' main goal is to get the commission, once they get it, they're good. It doesn't matter to them if your investments are not performing well because they got their commission/MER etc.

and if you do not do well, you don't have to blame anyone =) except for yourself, but hey, dust yourself off and try again. One might have learned something from all that.


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