Frequently Asked Questions
Tax slips are mailed out at the end of March the year following your investment. We have to wait for each of the resource companies to report to us. This generally happens around mid-February, and then the information is forwarded to our auditors who produce each client’s T-slip.
No, the product was designed to allow Oil & Gas as well as Mining, and even Alternative Energy in the fund. This was done for 2 reasons. First, by allowing more resource sectors, the universe of stocks to choose from is larger, which hopefully translates into overall better performance. Secondly is increased diversification. While Oil & Gas and Mining are both resource sectors they can, and often do, diverge in overall returns. So, diversifying between them benefits the portfolio and the investors.
The best way to purchase units in the fund is individually as there is a Tax slip sent in the investor who then uses it to get the tax benefit. In order to do a joint purchase, there would have to be explicit written documentation sent to our auditors regarding how to split the purchase and subsequent tax benefit.
Not sure. This is really a question for your accountant. There are benefits for both but be aware that a Corp does not get to use the extra Federal ITC. Only individual purchasers can utilize this extra tax credit.
The term Super Flow-Through refers to an additional tax benefit the Federal Government added to the FT program a number of years ago. Essentially, they are giving individual investors a second tax incentive in the form of a 15% Investment Tax Credit (ITC). Note that this only applies to the minerals portion of our portfolios and does not apply to energy shares. So, this extra ITC will generally result in the investor realizing about 115% tax incentive in total.
The maximum term of a Pavilion fund is 64 months from December 31 of the year purchased. This is longer than most FT’s. Please note that there is no redemption feature in a FT fund.
The objective of the Pavilion FT funds is for investors to make money on their capital regardless of the tax incentive they receive. In order to achieve returns in the resource sector you need some time. Some stocks need less time, and some will need more. We choose this maximum term as a happy compromise. Not so short that the investee companies won’t have several drilling seasons to grow their resources and develop and communicate value. But, also not so long that the fund completely ignores that harvesting gains, and reinvesting in new opportunities, while collecting a tax incentive, is also productive activity for wealth building.
Unlike most of our competitors, who do what’s called a mutual fund rollover, we use a straight cash exit. The main reason we do this style of exit goes directly to the fact that some stocks need more time, and some need less. That means that each stock in the portfolio is unique. While we build a portfolio, we recognize that this is a unique sector and that it is more like venture capital investing, in that some stocks will be very successful, and some will not. You do not rebalance such a portfolio, so you are therefore left to manage each individual position given its own circumstances. What this means is that as soon as a portfolio is formed each stock begins its own path. As managers, we are forced to make decisions about each stock along the way. Some will perform well early in the fund’s term, and we may want to take some profit, and risk, off the table necessitating a sale. Other stocks may disappoint us we may choose to go into harvest mode on that stock. Each of these decisions drives a sale of a stock, and rather than sit on that cash until the end of the term we return it to investors as a distribution from the fund.
No, as with most investments there is no guarantee of profit on any monies invested. However, unlike most other investments, with FT funds you are able to mitigate some of this risk by the upfront return of some of your investment in the form of the tax incentive you receive for the year that you invest.
It is a dynamic process and the Portfolio Manager is continuously researching and purchasing shares as capital comes into the fund. This continues until close to the end of December, when sales of fund units are closed.
You will receive a confirmation and thank you letter shortly after placing your investment followed by a unit certificate. We also send out a mid-year unaudited financial statement and a year-end audited statement each year.
No, a FT investment is not RRSP eligible. This is because the CRA has already given you a 100% tax incentive on the investment so you cannot get a second tax refund by placing it inside an RRSP.
It seems too good to be true. Why did the Federal Government come up with this program, which gives such a generous tax break
Canada is very fortunate to have abundant natural resources and our economy relies heavily on them. Investing in junior resource exploration & development can be risky business. So, to offset some of the risk to the investor and to help our Canadian explorers and developers to raise much needed capital, the program was initiated.
- The cyclical nature of the resource sector
- Commodity price fluctuations
- A resource company’s share price fluctuations
- Reduced liquidity
Are there any other tax credits available in addition to the main, 100% CEE credit and the extra 15% METC (Super Flow Through)?
It depends on where you live and where we invest. Currently there are 4 Provinces that have additional tax credits available on top of the CEE & ITC, including Ontario, Manitoba, Saskatchewan and British Columbia. To be eligible for this extra credit, the amount of which varies by province, you must reside in that province and the fund must purchase shares of a resource company from that province. For example, BC offers a 20% extra tax credit. If you reside in BC AND the fund purchases one or more BC based mineral resource company shares, then you would be able to claim the provincial credit based on the percentage of the portfolio that is in BC companies.