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Tax benefits to boost the green economy let investors maximize support for charities

Flow-through shares + charitable tax savings benefit both mining and philanthropic sectors
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Peter Nicholson, Founder and President, WCPD Group of Companies

As the world drives toward green technology, you’ve likely heard concerns about our ability to source the materials needed to fuel it – minerals like lithium for electric car batteries or copper for solar panels.

Dubbed critical minerals, these are the building blocks for the future of our green and digital economy, used in a wide range of essential products, from your mobile phone to medical equipment applications.

And Canada just happens to be one of the leaders in this sector – No. 3 after Russia and China. As world markets look to diversify the supply network and mitigate the risk of global supply chain disruption, the Canadian government has stablished a Critical Minerals Centre of Excellence to help supply the world with responsibly sourced products.

One of the ways it has done this in recent years is to encourage flow-through shares to junior mining companies.

Essentially, flow-through shares are a financial tool the government uses to raise capital for junior mining companies – like those aiming to search for and mine critical minerals. Investors receive a tax deduction equal to the amount invested, explains Peter Nicholson, President & Founder of Ottawa-based WCPD Inc., an exempt market dealer offering efficient financing for Canadian resource and mineral exploration since 2006.

When paired with Canada’s charitable donation tax rules, flow-through shares brings both the tax benefits and the opportunity to donate more to charity for less due to the increased tax savings.

Nicholson explains how it works:

  • When a junior mining company plans to drill, WCPD’s clients purchase flow-through shares for the 100 per cent tax deduction and donate them to the charities of their choice.
  • The shares are then sold to a pre-arranged liquidity provider at a discount a moment later, eliminating any stock market risk. The registered charity received the cash proceeds and issues a tax receipt to the donor, generating a second 100 per cent tax deduction.
  • Alternatively, instead of donating the shares to charity, investors can simply retain the cash and make net returns usually greater than 20% because of the tax savings. But typically, individuals and businesses are looking at opportunities to maximize their philanthropic donations.

Flow-through shares themselves are nothing new; in fact, they’ve been around since 1954. They’ve not only generated billions in financing for junior mining companies, but more than $1 billion in giving to registered Canadian charities since 2006.

While the benefits for investors / donors largely fall to those with $225,000+ in taxable personal income (those in the 50 per cent tax bracket in B.C.), other opportunities currently exist for liquidity providers, who have the benefit of purchasing the stocks at a discount, because of the tax savings to the original purchaser.

Essential for our future

While some investors have been hesitant to contribute to mining for the perceived environmental concerns, the importance of minerals critical for a green future is changing that.

“We need to meet the surge in demand, or we won’t be able to get our electric cars on the road to meet our carbon targets,” Nicholson explains. “There’s a massive demand, not enough supply, and the world is looking to us.”

Additionally, investing in this sector brings jobs – especially for Indigenous people in Canada’s north.

As part of the Canadian government’s economic initiatives, it’s introduced an enhanced tax credit, where investments into explorations involving minerals such as copper, nickel, lithium and cobalt will now provide a 30 per cent tax credit – equal to a 60 per cent tax deduction, on top of the 100 per cent tax deductions from the flow-through structure, Nicholson notes.

While Canada’s major accounting firms are aware of the tax benefits of using flow-through shares with immediate liquidity providers, it’s new to some smaller firms and Nicholson invites queries from accountants and others wanting to learn more. And no, it does not create a red flag for Canada Revenue, as you have all the necessary receipts that support the government programs.

In the end, it’s the charities that benefit, with donors able to contribute more to the causes that matter to them, whether in health, social justice, the environment or the arts. “Revenue Canada has never thanked me for all the taxes I’ve paid over the years, but you’ll get lots of ‘thank yous’ from the charities you’re able to support,” Nicholson says.

Learn more at wcpd.com or contact Peter Nicholson in Ottawa, at 613-851-0417.