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It’s time for Canada’s highest earners to step up

Amid climate change and income inequality, flow-through shares offer a solution

Portrait photo of Peter Nicholson
Peter Nicholson, founder and president of WCPD Inc.

When you read the news or walk the streets in Ottawa, it is clear the world is changing — and not always for the better.

This past summer, Canadians experienced unprecedented hardship and devastation from raging wildfires. Whether in British Columbia, Nova Scotia or the Northwest Territories, homes have been destroyed, lives have been lost and enormous funds spent from public coffers.

Meanwhile, in our city, there are different warning signs, but just as troublesome. In the wake of COVID, the state of our downtown core has been a hot button issue, with a perfect storm of rising poverty, homelessness and sprawling vacant office space as companies and government agencies shift to remote or hybrid work.

In May 2023, Rachel Wilson, CEO of the Ottawa Food Bank, offered a sobering portrait when she testified before the House of Commons Standing Committee on Finance. According to her, one in seven families in Ottawa reported food insecurity, compared to one in 15 five years ago. She also revealed an astonishing 86-per-cent increase in visits since March 2019.

Philanthropy is certainly one of the biggest ways we can move the needle on these complex problems. Only by sharing our good fortune can we alleviate the hardships brought on by climate change and class inequality. But there is just one problem — society is giving less.

According to the 2023 Giving Report produced by CanadaHelps, giving participation, or those claiming charitable donations on tax returns, continues to decline. Perhaps most concerning is this dip can be seen across all demographics, including those making more than $250,000 per year. Although Canada’s highest earners represent the largest amount of giving, the participation rate has fallen over the past decade from 85 to 67 per cent.

The report highlighted 40 per cent of charities experienced a lasting increase in demand after the pandemic, while 57 per cent admitted they cannot meet the current demand for services.

“These alarming drops in just a 10-year period are of utmost concern,” the report concludes. “Strong giving participation rates are critical for ensuring a vibrant charitable sector and therefore a strong safety net and healthy communities. While there may be many reasons, it raises concern that our values towards giving and caring for our communities may be changing.”

So if Canadians are giving less and the needs of society are increasing, how can we bridge this giving gap? I believe my company, WCPD Inc. (an acronym for Wealth, Creation, Preservation and Donation), or “Wealth” for short, is part of the solution.

Since 2006, I have dedicated my professional life to helping wealthy Canadians reduce their taxes and, if they wish, give those proceeds to charities of their choice. Flow-through shares, with immediate liquidity, are a tried-and-true model that has never been more relevant.

Let me start by dispelling two all-too-common misconceptions. The first misconception is that the flow-through share model carries stock market risk. When our clients buy flow-through shares, they are essentially providing seed funding so junior mining companies in Canada can explore for the materials we need.

As you may have seen in the news, critical minerals have become a national priority. Only through the discovery of cobalt, zinc, lithium and a myriad of other minerals can we produce electric car batteries, solar panels, wind turbines and other technologies to reach a green energy future and curb climate change.

If you were buying standard flow-through shares with no guaranteed liquidity provider, then it would be a risky, speculative investment, based on whether that company discovers something exciting. To use a baseball analogy, you could hit a homerun or suffer a strikeout.

But our structure is special. When our clients invest in these exploration companies, they instantly sell them to a liquidity provider (usually an institutional mining investor), which is willing to take a long-term view and carry that risk.

In exchange for taking the risk, we sell the shares at a discount, usually in the range of 10 to 20 per cent. That might sound like a bad deal, but here is the catch — for buying those flow-through shares, you receive a 100-per-cent tax deduction, not to mention a bevy of provincial tax credits (which vary by province). For exploration involving critical minerals, you can also add a new 30 per cent federal tax credit, equal to a 60-per-cent tax deduction.

Which brings me to the second misconception — that this structure is somehow a loophole for avoiding tax. That the government does not know about or want the structure. In reality, it is exactly the opposite. Government tax policies exist for a purpose. In the case of flow-through shares, they have been around since 1954, to spur our world-class mining industry and boost our economy. More recently, the Critical Mineral Exploration Tax Credit (CMETC) provides an additional incentive to help find the materials for renewable energy.

And then there is another policy, which applies to you, the donor. Remember the liquidity provider? Well, after you buy flow-through shares, you can donate them to charity. And what happens when you donate to a registered charity? It triggers a 100-per-cent tax deduction, plus the 100-per-cent tax deduction you received from buying flow-through shares, not to mention provincial tax credits. If the deal involves critical minerals, you benefit from the new CMETC.  

Combined, these tax policies allow our clients, on average, to give up to three times more to charity, at no additional cost due to the tax efficiency. While the process might sound complicated for the client, it is seamless — a single transaction that results in a cashable cheque to your charities of choice.

The key cog in the wheel is you must have tax to pay — more than $250,000 of salary or a large capital gain. You have to pay those taxes anyway. The only difference is, the government allows you to divert a portion of them to support mining exploration and charities. 

Fortunately, both of these areas help solve our two big problems in the world.  How else can you support renewable energy, while also giving back to society? 

Between our firm and a handful of competitors, it is estimated that only around 3,000 Canadians actively participate in this structure annually. That compares with approximately 350,000 Canadians making $250,000 or more. Could you imagine a world where even a quarter of these Canadians paid a portion of their taxes to charities of their choice?

We can’t afford to sit on the sidelines any longer. It’s time for Canada’s highest earners to step up. And all it takes is the stroke of a pen.

How it works:

Step 1: 

Buy flow-through shares issued by a Canadian mining company. Every dollar invested in these shares is 100% tax deductible.

Step 2: 

Immediately donate these shares to charity. These shares are then instantly sold to a pre-arranged buyer (liquidity provider) at a pre-arranged contractual price.

This step eliminates any stock market risk to the donor.

Step 3: 

Charity receives the cash proceeds and issues donation tax receipt to the donor, generating a second 100% tax deduction.

The result: 

By combining two tax policies (flow-through shares & donations), the Foundation (WCPD) can help reduce your taxes, and if you wish to, allow you to give more.

Browse this year’s Giving Guide: