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Maxing out your assets in taxing times

Flow-Through Shares


Purchasing flow through shares is another method of postponing taxes, and is very popular with higher income earners, because they get to postpone their tax burden. The problem with the flow through share is that it will accumulate your tax burden over a number of years. For example, if a doctor making 300,000 a year doesnít pay tax for the first five years, by the 6th year they have a taxable income of 1.8 million dollars, which puts the person in a much higher tax bracket. So not only is the tax being accumulated, it is being compounded, due to the progressive tax rate system in Canada.

Flow-through shares are always sold at a price which tends to be extremely inflated beyond their true market value. Typically, flow-through shares are offered by natural resource, utility, and mining companies. These companies sell the shares at an inflated value, to cover the costs of facilitating and administering the flow-through.

Another problem is, you must sell the flow through share to another investor to recoup the initial amount of your investment. Consequently, if the participant canít find another buyer, they are stuck, and out the amount of their investment.

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