Globe says Power Nickel feeling the pinch of tax tweak

Jun 24, 2024

2024-06-24 07:51 ET – In the News

The Globe and Mail reports in its Saturday edition that an impending change in the capital-gains tax will soon make flow-through-share transactions significantly harder to pull off. The Globe’s Niall McGee writes that on June 25, the inclusion rate increases to two-thirds for capital gains of more than $250,000 from 50 per cent. Owing to the way flow-through shares sales are taxed, the capital-gains tweak is expected to hit the market in a big way. Power Nickel chief executive officer Terry Lynch is feeling the pinch. The premium on new Power Nickel shares this time around was 1.9 times the market price, or about 10 per cent lower than when he went to market a few months ago. “The cost is $2-million just straight out,” said Mr. Lynch. “And it’s going to get worse.” Eighty-eight per cent of newly issued flow-through shares in Canada are sold to high-net-worth “front-end” investors, who immediately donate them to a registered charity. This strategy generates two tax breaks, a straight deduction in income for the entire amount paid for the shares, and a charitable tax credit, what many call the “double dip.” Since charities do not pay tax, it is the front-end investor that is on the hook when the shares are sold.

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