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Frequently Asked Questions

What are flow-through shares?

Flow-through shares are like any other common share issued by a company, except they also provide tax benefits to the purchaser.  A flow-through share is available to mining, petroleum and certain types of renewable energy companies to facilitate financing their exploration and project development activities. In return for receiving these funds, the resource company has the obligation to “flow-through” to the purchaser of the flow-through shares the tax deductions it receives upon spending the funds on qualifying exploration and development activities. Except for these initial tax benefits, flow-through shares are indistinguishable from all other common shares of company.

What is a flow-through limited partnership?

A flow-through limited partnership enables investors to own an equity interest in a portfolio of flow-through shares of Canadian resource companies rather than of just one company.

Canadian resource companies receive special tax deductions for certain exploration and development expenses that flow through the limited partnership to investors, who receive up to a 100% tax deduction for the amount invested. Typically, after a period of 18-24 months, assets of the limited partnership roll over on a tax-deferred basis in exchange for redeemable units or shares of a resource-based mutual fund of equal value.

What type of companies can issue flow-through shares?

Companies actively engaged in oil and gas or mining exploration or development and certain alternative energy projects are qualified to issue flow-through shares. A Jov Flow-Through Limited Partnership will focus its investment capital on oil and gas exploration, development and/or production companies. Jov Flow-Through sees many opportunities for investment in energy companies formed by experienced and successful oil and gas executives who have excellent track records in creating shareholder value.

Why buy a portfolio of flow-through shares?

Buying a professionally managed portfolio of flow-through shares, rather than shares in a few individual companies, reduces the risk inherent in owning only a few stocks through diversification. In addition, Jim Huang, Jov Flow-Through’s Portfolio Manager, is an experienced “institutional investor” and has established industry relationships with many of the companies that issue flow-through shares and many of the investment dealers that manage flow-through share offerings. A Jov Flow-Through Limited Partnership therefore, may have access to flow-through share offerings that are not available to the general public.

Are the tax benefits legitimate?

Yes! The tax benefits associated with flow-through shares are well-accepted in Canada and have been in place through legislation for over 20 years. The other consideration with Jov Flow-Through Limited Partnership(s) is that the funds invested stay in Canada to be used to create genuine and valuable economic activity and growth within Canada’s mining and energy sector. Further, the tax deductions are only available to those people who pay Canadian taxes. The Partnership and General Partner have received a tax opinion from Borden Ladner Gervais LLP on the structure (please refer to the prospectus of the offering to which you are considering an investment in for the full text on this opinion).

What are the risks?

Perhaps the most significant risk is that the resource sector has typically been cyclical. This said, resource stocks generally have this fact inherently embedded in their share price. One factor to remember is that with the tax deductions, investors may have a lower effective net at-risk capital amount of only 50% to 52% of the cost of the investment (based on the minimum offering) than investors in a conventional portfolio of resource securities (please refer to the preliminary prospectus of the Limited Partnership to which you are investing to view the “Risk Factors” associated with an investment in Partnership Units)

What corporate activities qualify for flow-through shares?

The government of Canada has stringent requirements that must be met in order to determine whether an activity is development or exploration in nature; the key difference being the amount of write-off allowed.  Exploration and certain development activities can be written off at 100%. The companies to which Jov Flow-Through Limited Partnerships invest in have experience in determining which classification of activity they are spending flow-through proceeds, and the investment agreements with these companies will require them to spend the funds as agreed.

What is ACB (Adjusted Cost Base)?

The adjusted cost base or “ACB” of a share is generally what you paid for it. Once you realize the tax deductions from flow-through shares, you are deemed to have an adjusted cost base (ACB) of nil due to the receipt of the tax benefits, which will approximately equal your original investment amount. A nil adjusted cost base means that when you calculate your capital gains on the shares, you treat your adjusted cost base as zero; however only half of the capital gain is taxable.

How and when do I receive my tax deduction?

Prior to the end of April of the year following the purchase of your flow-through investment, you will be mailed a T5013 federal tax receipt form from your investment dealer.

How much is my tax deduction for the tax year in which I invest?

The partnerships intend to invest 100% of available funds in flow-through shares. Therefore, the expected tax deduction for a limited partner in the year of purchase is up to approximately 100% of the amount invested. Because of these anticipated tax deductions, investors may be able to reduce their effective net at-risk capital to approximately 50% to 52% of their original investment (please see the prospectus for the relevant partnership for a full description of these calculations).

What about my capital losses from other investments?

If you sold investments and created a capital loss that you have not yet claimed, it can be carried back three years and forward indefinitely. This allows you to offset other capital gains against these losses, thereby reducing the tax you pay. The capital gains resulting from the sale of your investment, if any, after the initial investment period of approximately 22 to 22 months, can be offset against any unused capital losses you may have.

Are there enough quality resource companies issuing flow-through shares?

Yes! During 2007 Canadian resource companies undertook significant drilling activities as strong commodity prices have encouraged exploration and development of resource assets. Mr. Jim Huang, the Partnership’s Portfolio Manager, believes that this robust level of drilling activity bodes well for continued demand by Canadian oil and gas companies for flow-through equity funding. Financing exploration and development drilling opportunities by way of flow-through share issuance enables resource companies to maximize their drilling opportunities in a strong commodity price environment while maintaining low levels of debt.

What will your investment focus be - oil and gas, mining or alternative energy?

The partnership will invest 100% of its available funds in mining and energy exploration, development and/or production companies. The Partnership’s Portfolio Manager will weight the portfolio based on industry trends and investment opportunities available to the Partnership. It is anticipated that the Portfolio will initially hold approximately 50% mining and 50% energy sector stocks.

Who manages the flow-through portfolio?

T.I.P. Wealth Manager Inc. (the “T.I.P.”) will act as sub-advisor to JovInvestment Management Inc. and will be responsible for the Partnership’s investment activities. Mr. Jim Huang, the President of T.I.P. will act as Portfolio Manager on behalf of T.I.P. Mr. Huang has over 14 years of investment experience and was a Vice-President and Portfolio Manager at NATCAN Investment Management Inc. and its predecessor Altamira Management Ltd. While working as lead or co-manager at Altamira, Mr. Huang managed or co-managed over $2 billion in mutual funds an institutional assets, including all of the resource and equity income products in the Altamira and National Bank mutual fund families. Altamira Energy Fund, Altamira Resource Fund, Altamira Precious and Strategic Metals Fund and Alta Fund (a Canadian Equity fund focusing on Western Canada) had industry-leading performance, won awards and had positive press coverage under Mr. Huang’s Management.  In addition, Mr. Huang has experience managing the portfolio’s of flow-through limited partnerships and other resource funds, having acted as Investment Advisor for Rhone 2004 Flow-Through Limited Partnership, Rhone 2005 Flow-Through Limited Partnership, Alpha Energy 2006 Flow-Through Fund, First Asset Energy & Resource Income & Growth Fund and First Asset Energy and Resource Fund, as well as other privately offered flow-through investment vehicles.

Can Corporations benefit from buying flow-through?

Yes, corporations have the same advantages buying flow-through as does the individual investor. To view the advantages specific to your province please visit our Tax Planning For Corporations page.
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