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About Flow-through
limited partnerships

A Tax Assisted Investment

Flow-Through Limited Partnerships are a tax-assisted investment in resource and renewable energy companies. Currently, most partnerships exclude companies involved in fossil fuel extraction.

Investments in Flow-Through Limited Partnerships may be of interest to:

How it works

Short Summary: The investor receives 100% tax deduction
and tax credit for their investment.

A Flow-Through Limited Partnership is a pooled investment that invests inflow-through shares of mining companies. The investors receive tax deductions for 100% of their investment.  Typically, about 90% of the deductions are Canadian Exploration Expenses (or CEE), which are available in the year of the investment, while the other 10% are issue cost deductions that pay management fees, commissions to advisors, legal costs, and other costs of issuing the limited partnership.

The investor will usually receive federal mining tax credits of 15%.  BC investors may receive an additional 20%tax credit if the partnership invests in BC mining companies. The investor is eventually taxed on theses credits. When the Flow-Through Limited Partnership is liquidated, normally the entire proceeds are taxed as a capital gain to the investor.  

All the examples below are illustrated for an investor in a 50% marginal tax bracket for simplicity.

The net result of the tax credits and tax deductions are to lower the investors capital at risk. An investor with a 50% marginal tax rate will have about $4300at risk for a $10,000 investment. If the investor received BC credits, the investor would only have $3425 at risk. An outline of this calculation is provided further down in the After-Tax Return Calculations Section.

Holding periods

The investor must hold their Flow-Through Limited Partnership for a specified holding period - usually between six months and two years. At the end of the holding period, the manager will either liquidate the holdings and return the proceeds to the investor or convert them to a mutual fund the investor can redeem.

Example - how much capital is at risk?

Here are two examples, assuming a 50% tax bracket. The first is for an investor in any province investing in Flow-Through Limited Partnerships. The second is for a BC resident investing in a Flow-Through Limited Partnership, which exclusively invests in BC companies. Both cases assume 90% of the investors outlay is invested in flow-through shares, and about 10% goes to issue costs.

$4,500
$500
$4,500
$500
$3,425
$4,325
After Tax Cost of Investment
Tax Reduction Issue Costs
Tax Reduction CEE
Tax on Tax Credits
Tax Credits
$1,350
- $675
- $1575
$3150
Flow Through LP Investing in BC
Flow-Through Shares for BC Residents
CEE Deductions for Investments in Flow-Through Shares
Issue Cost Deductions
$1,000
$9,000
$1,000
$9,000
Investment
Flow Through LP Investing in Canadian
Flow-Through Shares
$10,000 (Sum of the below two rows)
$10,000 (Sum of the below two rows)

After-Tax Return Calculations

These pre-tax return examples are hypothetical and not meant to be indicative of projected or historical returns of Flow-Through Limited Partnerships. The after-tax rates of return are based on the after-tax cost of investment for $10,000 invested in a Flow Through Limited Partnership. These calculations also account for any tax credits or deductions the investor receives.

Flow Through LP Pre-Tax Return
Proceeds
Capital Gains Tax (25% of proceeds)
Net After Tax Proceeds
After-Tax Rate of Return (Canadian Flow Through)
After-Tax Rate of Return (BC Flow Through for BC Residents)
-30%
$7,000
$1,750
$5,250
21.39%
53.28%
-20%
$8,000
$2,000
$6,000
38.73%
75.18%
-10%
$9,000
$2,250
$6,750
56.07%
97.08%
0
$10,000
$2,500
$7,500
73.41%
118.98%

History

Flow-Through Limited Partnerships have been available in Canada since 1984; and endeavor to expand Canada’s natural resource sector by funding exploration.    

Resources

The CRA has additional information on howthe flow through shares work.

External LinkThe Canada Revenue Agency

Report on tax returns

Investors of Flow-Through LimitedPartnerships receive a T5013 tax slip. It is straightforward to copy the numbers from the boxes on the slipsinto a tax preparation program.

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