Advantages of Flow-Through Limited Partnerships
- Potential for Capital Appreciation: Flow-through LPs primarily invest in growth-oriented oil & gas and mining exploration, production and development companies.
- Reduce Current Taxable Income: CEE flow-through LPs may be structured such that the amount invested is 100% tax deductible against any source of income in the year the investment is made (except in Quebec). Additional deductions may also be available in subsequent years.
- Preferential Tax Treatment of Capital Gains: Tax deductions shelter income and reduce the adjusted cost base of the investment to nil. As a result, proceeds realized on disposition are taxed as capital gains.
- Tax Deferral: Taxable income in the year of investment is effectively converted to capital gains tax in the year of the disposition.
- Take Advantage of Capital Losses: Realized capital losses and/or net capital loss carry-forwards can be used to offset capital gains realized. l Diversification: Flow-through limited partnerships may offer exposure to several public and private issuers of flow-through shares.
- Professional Investment Management: Flow-through limited partnerships are actively managed by professional portfolio managers.
Who can benefit from Flow-Through Limited Partnerships
- High-Income Earners: High-income earners who are taxable at the highest marginal tax rate.
- Investors Taxable at Lower Rates in the Future: Flow-through limited partnerships can be used to defer taxes to periods when an investor will be taxed at a lower tax rate.
- Recipients of Large Lump Sums of Taxable Income: A recipient of a large lump sum of taxable income can use flow-through limited partnerships to shelter the payment from taxes.
- Investors With Capital Losses: Investors with capital losses and/or net capital loss carry-forwards can offset capital gains realized on disposition of flow-through limited partnership units.
- Investors Who Plan to Make a Charitable Donation: Investors can maximize tax savings by donating the mutual fund units from the rollover event to qualified charitable organizations.
- Investors Saving for Retirement: Investors can use flow-through limited partnerships to augment their retirement savings while obtaining tax benefits similar to those provided by RRSPs.
- High-Income Seniors: High-income seniors can use flow-through limited partnerships to reduce taxable income to maximize OAS benefits.
- Corporations: Corporations, including personal holding companies, can also take advantage of many of the benefits offered by flowthrough limited partnerships.