It received little notice from media at the time, but something quite remarkable happened during the recent federal election: the Liberal and Conservative parties strongly agreed about something.
Their consensus? That flow-through shares are a very good thing—for high-net-worth taxpayers, the Canadian economy and charitable causes.
But what are flow-through shares?
Understanding flow-through shares
Flow-through shares are the product of a tax policy that provides seed capital to mining companies, thereby funding their efforts to explore for valuable resources. Those who purchase the shares receive a 100% tax deduction.
Remarkably, despite being unknown to the vast majority of Canadians, flow-through shares aren’t a new concept. In fact, they were introduced in 1954—three years before RRSPs. Their obscurity often surprises Peter Nicholson, founder and president of the WCPD (Wealth Creation Preservation & Donation) Group of Companies, an Ottawa-based financial services firm that specializes in philanthropic tax planning. “I was talking to a senior tax partner only yesterday,” he recalls, “and he said, ‘I don’t know why my other partners don’t promote this more.’”
Flow-through shares have always been a safe and trusted means of creating greater tax efficiency and benefitting both the mining industry and charities. “And,” says Nicholson, “they create two great things the government wants: more charitable giving and more mining exploration.”
One worthy cause benefits another
Nicholson says a common first question among his clients—most of whom qualify as major donors—is how mining and charities relate to each other under the umbrella of flow-through shares.
He explains that when flow-through shares are purchased, a client will then sell them to a liquidity provider (a person or company that facilitates trading) or other third party and donate the proceeds to one or more charities of their choice, resulting in a second 100% tax deduction. “On average,” says Nicholson, “flow-through shares allow donors to give three times more to charities than they did before—at no additional cost because of the tax efficiency.”
Additionally, a well-funded mining industry is itself a worthy cause that benefits Canada—and the rest of the planet—in multiple ways.
Canadians, says Nicholson, are “geniuses of mining”; our country is among the most innovative and productive mining nations in the world. Mining accounts for more than $100 billion of Canada’s annual GDP, and produces more than 700,000 direct and indirect jobs. As well, it has long been the top employer of Indigenous peoples.
“There’s an analogy I use that’s jaw-dropping for most people: 66% of all public mining companies in the world are Canadian—our mining engineers are all over the globe. And as of today, 45% of all NHL players are Canadian. We’re better at mining than we are at hockey!”
Furthermore, when Canadian mining produces a significant discovery—whether gold, nickel, lithium or other “critical minerals” (metals and non-metals that are critical to global economies)—it can potentially result in billions in tax revenue for federal and provincial governments, as well as contribute to ongoing technological innovations in computers, medical equipment, electric vehicles, renewable energy and much more.
Significantly, WCPD doesn’t facilitate flow-through shares related to coal, gas and oil exploration, mirroring the Liberals’ election proposal to eliminate shares in these sectors so as to promote Canada’s ongoing transition to a net-zero economy. “Like us, most of our clients are green focused,” says Nicholson.
A new era of giving
Since the beginning of the COVID-19 pandemic, Nicholson has seen the purchase of flow-through shares lead to unprecedentedly generous donations benefitting food banks and homelessness charities. Historically popular beneficiaries including schools, hospitals and medical research also continue to receive crucial funding from major donors as a result of flow-through shares.
As the calendar year comes to a close and tax season approaches, Nicholson encourages all high-net-worth Canadians to inquire about the “win-win-win” outcomes of purchasing flow-through shares. “If you’re a high earner, you recently sold a business or you experienced a large capital gain, you can help Canada’s mining industry while also giving to charities of your choice,” he says. “They’re really one of the most effective tools for stimulating the economy, helping those in need and producing a more satisfying tax result.”
To learn more about flow-through shares and WCPD’s suite of financial services, visit wcpd.com.
