Flow-through Shares &
Limited Partnerships
The Pavilion Resource Funds Guide to
Flow-Through Limited Partnerships
A quick glance at Pavilion Resource Funds
A Quick Guide to Flow-Through
A quick glance at the workings of Flow-Through and Pavilion
Dan Pembleton on Pavilion
Listen to President and Portfolio Manager Dan Pembleton as he gives a thorough explanation of Flow-Through and the Pavilion Resource Fund.
A Flow-Through Share is a type of share in a Canadian resource company. These shares allow the company to “flow-through” its expenses (known as Canadian Exploration Expenses, or CEE) to the investor, who then uses this as a deduction of their income for tax purposes. In addition to this, investors may be eligible for an additional 15% tax credit, know as the Mineral Exploration Tax Credit (METC). In return, the company then uses the money to continue exploration/development, helping grow the economy.
Some benefits provided by Flow-Through shares
Helps diversify your portfolio into Canadian natural resources.
Convert income taxes payable today at the highest marginal tax rate into a future capital gain, taxed at half as much as income would be.
Old Age Security (OAS) clawback is reduced or eliminated.
The amounts invested are generally fully or almost fully deductible against taxable income in the year the investment is made.
A Flow-Through Limited Partnership (LP) is a legal entity comprised of multiple investors that pool their money and invest it in flow-through shares across a diverse list of resource companies.
Investors receive the same tax benefits from the flow-through shares in the partnership in the same way they would as an individual investor.
Some benefits of LPs
Helps further diversify your portfolio, reducing risk.
Provides professional portfolio management.
Simplifies the investment process and improves communications, compared to investing in multiple companies individually.
Due to the volatile nature of junior companies in the resources sector, share values may swing largely in either direction in a short period of time. A solution to manage this volatility is to work with experienced fund managers and firms to scout for any potential pitfalls and to continually oversee investors’ portfolios, to best optimize for their investments. The Portfolio/Fund Manager, Accilent Capital Management, has been helping investors save on taxes, while growing capital, through 18 different Pavilion funds over 12 years.
Use the tax credits (refund) to partially fund next year’s purchase
At year 3, your new investment may be fully funded from previous tax benefits
Investing annually will diversify your portfolio into multiple funds and resource companies
Stronger returns on some funds can negate weaker returns from others, for an overall better performance
An advantage of a partnership is its ability to raise substantial amounts of funds, which may be invested in a diversified portfolio of FTSs.
Canada Revenue Agency