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My mission, to inform you!
“Money, if it doesn’t bring you happiness, it will at least help you to be miserable in comfort.”
– Helen Gurley Brown
Flow-Through Shares: A Powerful Yet Overlooked Tax Strategy for High-Income Investors
With Ontario’s top personal tax rate reaching 53.53%, high-income individuals are under growing pressure to maximize their after-tax returns. One underused but highly effective strategy is investing in flow-through shares — a mechanism that allows individual investors to claim resource exploration deductions initially incurred by Canadian exploration companies.
Let’s examine a simple example: an investor plans to withdraw $10,000 from their holding company for a personal investment. Depending on the form of extraction — salary, non-eligible dividend, or eligible dividend — the after-tax amount varies significantly.
After tax:
- A salary leaves $4,647;
- A non-eligible dividend provides $5,600;
- An eligible dividend yields $6,100.
If invested in flow-through shares, these amounts generate substantial tax deductions and credits — up to 53.53% in combined federal and provincial benefits — related to Canadian exploration or development expenses that the issuing company “flows through” to the investor.
Here’s the real advantage: the net cost to the investor after tax relief becomes:
- $2,159 with salary (only 21.6% of the original $10,000);
- $2,602 with non-eligible dividends (26.0%);
- $2,835 with eligible dividends (28.3%).
This means the investor could lose up to 70–75% of the value of the shares and still not incur a net loss — the tax benefit cushions the investment risk, effectively lowering the breakeven point.
⚠️ However, there is one critical planning mistake to avoid: do not use a Tax-Free Savings Account (TFSA) for this strategy. Flow-through tax deductions and credits apply only to taxable individuals. A TFSA is tax-exempt — it pays no tax and therefore has no taxable income to offset. This makes all the deductions and credits ineffective. In short, using a TFSA cancels the main fiscal advantage of flow-through shares.
The correct approach is to invest through a non-registered personal account, where the deductions can be fully applied to reduce personal taxable income.
To explore the full power of this strategy, Luc Dubé M.Tax (Tax Law Expert) and Jean Courcelles CFA, M.Sc (Investment Wealth Advisor) are hosting a free webinar: 🔗 Flow-Through Shares: Do Tax Incentives Provide a Sufficient Risk Premium?
This session is ideal for incorporated professionals, business owners, and high-income individuals seeking efficient ways to reduce taxes and enhance investment returns.
Old Age Pensions are out of control
Concerning the 17th Actuarial Report, of the Office of the Superintendent of Financial Institutions (OSFI), there is every reason to believe that the estimated cost of distributing old age pension (OAP) cheque benefits will be $74 B in 2023. As we progress in time, the figures highlighted in the report will blow your mind: a creeping barrage of cost increases culminating at 116% in 20 years.
With that in mind, let’s take a few minutes to get used to the magnitude of these numbers. As eluded, this year, it is estimated that we will cash $ 74 B worth of OAS, GIS/Allowance checks; for comparison purposes, the projected cost of Highway 413 is around $ 10 B; so, it’s like buying the equivalent of 7-8 Highway 413 every year!
More surprisingly, in 20 years, the estimated cost of OAP is $ 161 B. In all these dimensions, the problem lies in the fact that our taxes pay for OAPs, so their net costs are a current federal government expense. In other words, we must pay the full spectrum of this bill without any contributory aid from our fellow citizens.
Moreover, starting from this premise, waiting 20 years before seeing the upward spiral of costs is unnecessary. In the same OSFI report, actuaries concluded that there would be a projected expenditure increase of 117% between the 2022 and 2023 years, a projected expenditure increase of $ 12.7 B for the period between 2022 and 2026, finally; The number of beneficiaries utilizing OAP will increase quite markedly.
By this very fact, the cause of the meteoric acceleration of this expenditure is, invariably, the change in our society’s demographic landscape. With that in mind, let’s immediately fix one thing with OAPs: their sustainability; their survival is at stake. But, above all, it is unlikely that we can improve and amend the program for future generations.
As per Statistics Canada website; on a webpage called population projections for Canada (2021 to 2068), we don’t need an in-depth demonstration of analysis to figure out that as our population grows, so will the need for OAP check benefits. Indeed, these stats aren’t meant to be projections; however, where there is smoke, you know the rest…
Case-in-point: glance at the age structure of the Canadian population; it is unequivocal. The population growth of Canadians aged 65 years and older will accelerate rapidly. The Baby Boom Generation will transition to, what I call, the Retirement Boom Generation. It is estimated that by 2030, in 7 years to be precise, the proportion of the total population aged 65 years and over will increase by an average of 22%. So, naturally, this will further exacerbate OAP costs and may lead to necessary tax increases for the sole purpose of the program’s sustainability.
We have been discussing the viability of OAPs for years, years, and years. But, as indicated, we may, this time, be at an inflection point. As you know, silly season is every 3-5 years; therefore, politicians will naturally try to kick this one down the road.
Every little bit counts when it comes to Health Care
In the end, statistics show that the number of Québécois who will be 75 years + in 20 years will completely explode, an increase of 79% (Calculation: CFFP; Source: ISQ). The results are surprising; consequently, we will have to change our tune to adjust our fiscal policy within 20 years, to better match this new demographic paradigm with the accountability of our public finances.
The rain of gratuity does not exist in tax policy; every dollar; every cent counts; We need to ensure that there is as little inconsistency as possible when it comes to tax fairness. In Québec, like the Scandinavian countries of Europe, we are progressive with our taxation policies. In other words, we are more inclined to use the power of our taxation measures for our people’s merits and goodwill.
Notwithstanding my last comment, and we must say so, no tax system can be perfect; There have always been flaws and illogicalities that hide in plain sight, in the cracks of the walls, encrusted, for a long time, in the fabric of our tax system. It goes without saying; it is inevitable.
In this sense, you will be surprised to learn, at least I was, that the wealthiest in our society can keep 40% of Quebec’s Family Allowances (the “QFA”). Specifically, QFA in 2022, including the supplement, for a couple with two children aged 3 and 7 is $5,228. QFA’s reduction parameters are approximately within the family salary range of $50,000, up to $110,000. Once you have exceeded this threshold, there is no more reduction, and you keep a floor amount of $ 2080.
Let’s go back to the same example, but this time, let’s evaluate the Canada Child Benefit (the “CCB”). On the Ottawa side, they are more generous; they allocate $ 13,994. The amount is reduced, even more so, from approximately $30,000, up to $70,000. Then, the reduction of CCB is linear to the wage upsurge, up to $ 200,000 of family income. Once you have crossed this amount, receiving CCBs is no longer possible.
Well, how do you explain these differences? In Québec, even if you are two doctors with children aged 3 to 7 and earn $1M together: we will still recognize that you have a greater capacity to pay taxes, so, in turn, we want you to keep the universality of QFA payment. I would go one step further: I’m speculating, but it is possible that we used the French tax system as a proxy to justify the allowance payment. This system enables us to obtain tax advantages by adding children to your family cohort.
Admittedly, at the federal level, the philosophy is significantly different. So, with that; even if you have two children and your family income is high; unless you have access to a childcare expense credit; You will pay the same tax with or without children in all high-income situations.
At this point in the story, it is imperative to address the elephant in the room: is it necessary to continue to give benefits to people who do not need them?
Yes, okay, you may be right: in short, only some families in Quebec with a family income greater than $200,000 and even fewer families with children of age for QFA. But, admittedly, when we multiply this number of families by the minimum floor benefit of $2,080, the amounts involved are relatively small and symbolic.
As mentioned at the beginning, there will be a meteoric increase in the number of people who will be 75+ years old within 20 years. So, why not abolish QFA for the wealthiest in our society and finally inject them into our health care system?
My dear politicians, if there is a matter that I guarantee you, the political issue in Québec, the sinews of war, lies in this “sandbox.”
When should you incorporate your business
Just the other day, Joel, a client of mine, a young real estate broker, asked me when he should incorporate himself. I gather that at first, he thought I would give him a cookie-cutter, easy answer. However, nothing is easy when transforming one legal personality to another; we must use caution and nuance.
From the outset, some business owners will cross the Rubicon of incorporation sooner or later. But, in Joel’s case, he didn’t expect it to come so soon. As you know, Canada’s real estate market has not stopped going gangbusters for the better part of the last 20 years. Moreover, Joel worked for his dad’s construction company, and things went well. He was earmarked to take over the company in 10 years.
The truth? He was miserable. He didn’t enjoy the daily grind of building houses and found himself daydreaming, wishing, and longing for a different path in life. Then, finally, a friend of his told him that he should explore the virtues of becoming a real estate broker:
« Joel, you would be perfect for that job; you know everything about houses.» Immediately, he had a « come to Jesus’s moment,» and this simple conversation sealed his fate. He found himself in real estate school the following month.
Here we are now, at this junction, where Joel is relatively prosperous and inquiring about incorporation. But, of course, many of his colleagues are incorporated and have told him: « Joel, it’s a goldmine; you will save tons of money.» When he told me this, I nearly choked drinking my coffee!
Then, he asked me:
« Luc, just give it to me straight, I made 300,000$ last year, and I’ll probably make more this year; should I incorporate? »
With his question in mind, I took out a piece of paper, grabbed my Sharpie fine point marker, and drew three circles: « Joel, for me to answer your question, we must first and foremost establish the true concept of incorporation without any of the tax myths. » Within every circle, I wrote down the following tags and preceded to explain the different concepts:
Tax integration: Our tax system is based on the concept of integration. In a nutshell, the principle can be summarized as society’s tax fairness system. Furthermore, there should be no difference in the amount of taxes paid between a person who is an employee and someone who’s incorporated and has their own business.
Tax savings: Contrary to popular belief, incorporation does not increase the accumulation of tax savings: « As for tax savings, Joel, this is probably the biggest myth associated with incorporation. Consequently, there isn’t a Leprechaun with a pot of gold waiting to disseminate incorporation tax savings. »
Defer tax: The incorporation mechanism is effective if you can create excess liquidity in your business. In other words, if your lifestyle makes you consume all your business income, you lose one of the essential benefits of incorporation.
In short, we ended the meeting with me explaining other relevant factors to be considered:
« Joel, take a few days and think about what we discussed today. Other relevant factors include perpetual existence, limited liability, estate planning, division of ownership, financing, capital gains deduction, family trust, and death tax reduction. »
Joel said he would follow up with me in a few days.
Property Tax Conundrum
Imagine two properties side by side, each valued at $500,000. One of the properties was purchased last year by a middle-aged couple with a combined annual income of $200,000. The other has been owned for 50 years by an 80-year-old couple who bought it in 1973 for $50,000: They earned at most $75,000/per year. Now, both couples are retired and living on their pension. Is it fair for each of them to pay the exact property tax?
The raw reality is that cities, municipalities, and townships (From now “cities”) do not have the power to charge more tax to the couple with revenues of $ 200,000; that most revenues made available to cities come from property taxes; and finally, that there is an inconsistency, indeed a paradox, between a city’s fiscal mode and its economic development.
In an open letter dated 13/04/2022, the mayor of the city of Nicolet, Mrs. Genevieve Dubois, exposes, with full force, this inconsistency:
« […] We must work together and act quickly to change how cities are funded. Our tax system is completely obsolete. In the township of Nicolet, 87% of our revenues come from property taxes. Oppose, again and again, the preservation of the environment to economic development […].»
Knowing all this, to help cities, the Quebec legislature granted the first regulatory royalty fee (From now “RRF”) in 2008. Unfortunately, RRFs aren’t fully utilized and still need to be discovered in Quebec. Nevertheless, Ontario has always been a significant user of RRFs: This has allowed their cities to increase and diversify their tax revenues; and has provided a toolbox that gives rise to the imagination, creativity, and opportunity for new RRFs.
In short, the RRF structure is a jurisprudential concept derived from a statute, from a municipal by-law, which allows us to directly impose a tax on a specific behavior (From now “TOB”) that we consider harmful, behavior that we want to modify, influence, or deter for the benefit of our city. For example, some cities charge a tax for using and consuming water.
Moreover, as you know, there is a housing crisis, and citizens are asking for concrete solutions. At the same time, cities want to increase their constituent’s quality of life by creating durable and long-lasting ecosystems; infrastructure assets, which will be emblematic of their city’s cultural vision. This cultural vision is often in line with the development and ecological preservation of its territory because it increases the satisfaction of its citizens. In this spirit, generally speaking, real estate growth, or growth at any cost, is opposed to citizens’ quality of life.
To bridge the gap between its cultural vision; its lack of diversification and various sources of income; and its citizens’ needs, TOBs undeniably find their advantages. TOBs allow cities to establish/execute their strategic plans while maintaining some environmental control.
Therefore, to help alleviate the housing crisis, one of the ideas put forward by several Canadian cities is that of a vacant land tax (From now “VLT”).
The principle of the tax is as follows: there is a partnership between the city and real estate developers. This association’s purpose is to develop sustainable and ecological living environments. When it sells land, the city wants cash flow quickly. Real estate developers, in some cases, are not ready to start their projects. The VLT makes it possible to obtain, in the immediate future, cash flows through a tax on the non-construction of a real estate project.
Let us be frank: cities are the ones who ultimately will need to alleviate this crisis. Cities must take the bull by the horns and find innovative and creative solutions. But, of course, all of this can be done with targeted assistance from the provincial government. Now, with the deployment of TOBs, they have an exciting toolbox that can significantly begin to bridge the individual needs of the leading players in our community.
Capital gains; for the rich?
Class warfare, which is as old as humanity, can prompt specific individuals to question the legitimacy of some of the fiscal tax advantages granted by our legislators. On this principle, the tax derogatory mechanism of the preferential treatment of capital gains (from now on, « PTCG ») is highly politicized because it involves an important social justice issue for our society.
Before even considering changing the parameters related to the tax expenditure of the PTCG, it is beneficial to know who will ultimately be affected/targeted by the change in its tax treatment. The people who have benefited from the PTCG last few years aren’t, in large part, the wealthiest in our society.
The target
Think about it for a few minutes; visualize your family and loved ones; I’m reasonably sure that you know people who have initiated, at some point, the following financial transactions:
First, they may have sold a home, afterward, disposed of shares on stock exchanges, then; sold a small business; finally, they may have used the deferral provision for capital gains (from now on, « CG »)
Considering the list of people you just made, is it fair to assume that all your loved ones are wealthy? Indeed. Contrary to popular belief, the longitudinal line of people who benefit from the PTCG is well-defined and balanced among the multiple social classes of our society.
The empirical example we have just made together is grounded and supported by statistics. The authors of the essay entitled « The Real Concentration of Capital Gains in Canada » dissected specific data banks and came to the following conclusion:
« Lower-income taxpayers benefit more than you might think from the PTCG, especially when they are 55 years of age and older[1].» (Underlined added)
Admittedly, taking a step back, it is necessary to go beyond the figures and ask questions. For example, the perception that capital gains favor the wealthiest in our society is linked to a historical statistical compilation problem. In other words, if the issue you want to identify isn’t adequately supported by the tax data compiled, invariably, our conclusions and perceptions will be wrong.
The clustering effect[2]
The starting point of this article is the actual and timely knowledge of the classes of people who benefit, in some way, from the PTCG. Naturally, the aggregation effect falsifies the data analysis, as there is a concentration issue of several sources of income in the highest income classification brackets.
To correctly specify the income classification of the people who are ultimately the users of the PTCG, it is imperative to create two classification categories; one class of people with total incomes that includes taxable capital gains (from now on,« TCG ») and the other, the new classification, subtracts the realization of TCG. This is because the latest statistical classification accounts for the TCG differently; it is embedded directly within the multiple income classes.
First and foremost, we note the concentration effect in the first ranking. Most of the total value of TCG[1] would be concentrated in the highest income class. The reason for the concentration effect in the first ranking is quite simple: when people lock in their TCGs, there is upward mobility in the scale of their total income. People in a specific class make more money, and there is an elevator effect.
In the new classification, when we exclude the realization of TCGs from the classification, there is a significant migration of the value of reported TCGs to the low-income classifications. More specifically, there is an economic trickle, even more so, in the class of people whose total incomes are less than $50,000. As a result, this classification has the highest percentage of the full value of the TCG achieved[2] among the five types of classes.
Table 1: CANADIAN TAX JOURNAL (2021) 69:4, 1193-1212, « The Real Concentration of Capital Gains in Canada », Authors: Tommy Gagné-Dubé, Matis Allali, Luc Godbout and Antoine Genest-Grégoire.
How can we explain this change? It is, among other things, a displacement of several million dollars and several thousand taxpayers to their respective and proper income classes without the clustering effect.
In short, the new classification gives us two key observations: first, low-wage taxpayers also benefit from the PTCG. Subsequently, it is essential to mitigate and nuance the perception that the more affluent taxpayers disproportionately benefit from the PTCG.
[1] CANADIAN TAX JOURNAL (2021) 69:4, 1193-1212, Authors: Tommy Gagné-Dubé, Matis Allali, Luc Godbout and Antoine Genest-Grégoire, p.1194.
[2] Id., p. 1196
[3] Id., p.1200
[4] Id.TABLE 1,p.1198