The following provides answers to general tax related questions our investors often have with respect to their investment in the Jov Diversified Flow-Through Limited Partnerships. As Jov Flow-Through does not keep tax information on each individual investor, investors are encouraged to contact their own investment advisor or their tax consultant for further advice on their investment.
When will my T5013 tax forms be mailed out?
In January and February of each year, Jov Flow-Through gathers from the oil and resource companies in which it invests, the tax information from their exploration and development activities. The information is then forwarded to your investment advisor’s back office in order for them to prepare the T5013 tax forms for mailing to you. The T5013 should be mailed to you on or before March 31st of each year. These tax slips will be mailed out directly to you from your investment dealers head office. For further information on claiming the flow-through tax deduction and applicable tax credits with respect to your investment please see Tax Reporting 2009.
What is my adjusted cost base (ACB) and how do I calculate it?
The adjusted cost base or “ACB” of a share is generally what you paid for it. However, as an offset to you realizing the significant tax deductions from investing in flow-through shares, you are deemed to have an ACB of nil, due to the receipt of the tax deductions equal to approximately 100% of the amount you invest. A nil adjusted cost base means that when you calculate your capital gains on the disposition of your mutual fund shares, you treat your adjusted cost base as zero. To calculate your adjusted cost base, please contact your investment advisor.
Where do I claim the deductions on my tax return?
You generally claim your greatest amount of tax deductions in the taxation year that you buy units of Jov Diversified Flow-Through Limited Partnership. During the year that you invest, the limited partnership invests in flow-through shares of oil and gas exploration and development companies who in turn spend the money on exploration and development. These companies “renounce” the costs associated with this exploration and development to the limited partnership, which in turn flow-through the limited partnership to you. You can then claim your portion of these costs on your income tax return to reduce your income taxes.
You report capital gains when the limited partnership begins to sell the flow-through shares. Since the flow-through shares are deemed to have a nil ACB (see above), for income tax purposes, the entire proceeds are taxed as capital gains. The limited partnership allocates the capital gains to the partners on T5013 income tax slips (REL15 in Quebec). Some of the proceeds from the sale of flow-through shares may be re-invested in new flow-through shares, thus reducing or in some cases eliminating the income taxes otherwise payable on the capital gains.
Will there be additional cash distributions during the life of the limited partnership?
Capital gains tax can incur if the original portfolio of flow-through shares of the Partnership is sold. Typically, when a portfolio manager sells flow-through shares they do so with a view to re-investing the cash into higher quality and lower risk stocks. In this event, any capital gains is automatically allocated to the unit holders on a proportionate basis. Based on the expected roll-over date of the Partnership and amount of capital gains tax incurred, Jov Diversified Flow-Through will consider a cash distribution to unit holders at the beginning of each year that material capital gains are incurred. This cash distribution is typically equal to 50% of estimated taxable gains, less any tax deductions provided to investors (at a rate of 40%) as reported on T5013 information slips. A cash distribution is to be considered a return of capital for income tax purposes.
Why do I continue to get tax information slips after the limited partnership is wound up?
Initial offering expenses such as printing, selling commission, legal, audit, office expenses and certain other costs are deductible over a five-year period beginning at the time such expenses are incurred for the purposes of the Income Tax Act, regardless of the fact that the Limited Partnership’s life is less than five years.
