When most people think of tax-saving strategies, they think of RRSP or TFSA. However, tax-saving strategies that some investors may not be aware of are the use of flow-through funds. A flow-through investment opportunity we offer here at Raintree is the Pavilion Resource Fund. Read the following article by Graham Koehler, VP of Business Development at Accilent Capital Management Inc. which explores how individuals can invest in the Pavilion Flow-Through Fund, and in turn, create tax savings.
Reducing Taxes Owed Via Flow-Through Funds
There are many ways to utilize the Federal Government Flow-Through Program to help reduce taxes otherwise owed and create wealth. Two main credits are available to investors in the Pavilion Flow-Through Fund. When added together, they allow for 115% in tax benefits for every dollar invested. Most of these credits can be used in the year of investment to offset income or capital gains taxes otherwise payable. They can also be carried forward for as long as 20 years and used when they are most beneficial to the taxpayer. This allows an investor to fine tune their tax-saving strategies at any time up to the filing of their tax return. One of the main benefits is that the credits will reduce income taxes payable today at the investors highest marginal tax rate, but all money received back are taxed as capital gains or half taxed. This represents the incredible strategy of deferring income taxes payable today into a future capital gain.
There is also tax efficiency in utilizing any capital loss carry-forwards you may have to offset the capital gains on monies received from the flow-through investment. This offset of capital gain from flow throughs accelerates and crystalizes the value of those losses and further enhances the after-tax cash flows of a Pavilion Flow-Through fund investment.
Investing in Pavilion As A Tax-Saving Strategy
An investment in Pavilion can be very beneficial in cases where an investor must pay large capital gains taxes from the sale of a building, for example. Since 50% of capital gains is applied towards income and taxed as such, an investor can use a Pavilion investment to reduce this liability considerably.
Tax-Saving Strategies:
1. The Ladder Effect Strategy
Another strategy is using the Pavilion Flow-Through Ladder Effect. In this case the investor purchases a new Pavilion Flow-Through L.P. each year, for three to five years, to start their ladder. The Pavilion Flow-Through funds targets to mature in 36 months but can go as long as 64 months (depending on market conditions) in order to generate the best returns for clients. When an investor purchases each new Pavilion Flow-Through, they create tax savings from what they would otherwise have to pay. The investor can use this tax savings to partially pay (approximately half) for the next rung in their ladder or for other purposes. As the successive previous Pavilion fund investments mature, or provide an interim distribution, the proceeds can be used to purchase the new Pavilion fund offered in the maturing year, and therefore add another rung to the ladder. Each new successive rung also provides another tax savings, which again can be invested in another rung of the ladder, or for other purposes. What this can do is build a self-sustaining Flow-Through Ladder, which will keep spinning off tax savings and cash proceeds for new successive rungs in the ladder for as long as the client wishes to keep saving the tax.
2. The Tax Waterfall Strategy
Finally, many advisors and investors have developed a “tax waterfall” strategy wherein the tax savings from buying units in the Pavilion fund are used to invest within an RRSP and the subsequent tax savings from the RRSP contribution are used to fund a TFSA. Assuming the investments at least stay neutral (don’t go down in value), this strategy can multiply the total account holdings dramatically.
Could The Pavilion Flow-Through Fund Be The Right Tax-Saving Strategy For You?
The incredible flexibility that comes with investing in the Canadian Federal Flow-Through program can far surpass the use of RRSP or TFSA alone. Speak with your Private Wealth Advisor today for more information on how to purchase and utilize the power of flow through funds for reducing taxes otherwise owed as well as other tax-saving strategies.
