Sprott Flow-Through Limted Partnerships
What are Flow-Through shares?
To encourage investment in the Canadian resource sector, the Federal Government allows Canadian resource companies that invest in the oil and gas, mining and renewable energy sectors to fully deduct certain exploration and development expenses, Canadian Exploration Expenses (CEE) and Canadian Development Expense (CDE), respectively. To raise capital for exploration/development, those companies often issue flow-through shares and renounce the CEE/CDE to the purchasers of those shares. The shareholders are then able to deduct 100% of the CEE/CDE against their own income.
What is a Flow-Through Limited Partnership?
Flow-through limited partnerships are professionally managed diversified portfolios of flow-through shares. The amounts invested in CEE are generally 100% deductible against taxable income in the year the investment is made. The amounts invested in CDE are generally 100% deductible against taxable income on a 30% declining balance basis.
Tax benefits of flow-through limited partnerships
The cost of flow-through limited partnerships is 100% tax-deductible. In addition, the proceeds from the disposition of the partnership are taxable as capital gains and taxable only at a rate 50% of regular income.
Investors can defer their tax liability until they redeem out of the mutual fund corporation. The investors can switch between the classes of the corporation without triggering any tax consequences.
Investing in flow-through shares effectively converts income into capital gains, allowing investors to take advantage of any capital loss carry-forwards
The following summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular purchaser of units of Sprott Flow-Through Limited Partnership (the “Partnership”). Purchasers acquiring units with a view to obtaining tax advantages should obtain independent tax advice from a tax advisor who is knowledgeable in the area of income tax law and is able to determine optimal use of an investor’s federal and provincial deductions and/or credits, as well as impact, if any, on an investor’s liability for alternative minimum tax.
This offering is only made by prospectus. The Partnership’s prospectus contains important detailed information about the securities being offered. Copies of the prospectus may be obtained from your IIROC registered financial advisor. Investors should read the prospectus before making an investment decision.
This is a speculative offering. The purchase of units involves significant risks. There is no assurance of a return on a subscriber’s initial investment. Please refer to the prospectus for the complete list of risk factors associated with an investment in the units.