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Seabridge Gold, Inc. Message Board

  • sandspiderbm sandspiderbm Oct 18, 2012 9:28 AM Flag

    What are "Flow-Through" Shares

    Anybody know what flow-through shares are and why they would be sold at a 20% premium to current price?


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    • Here are some maths (I can´t post the URL, make a google search instead):

      Let’s pretend you bought $10K worth of flow through shares. Let’s pretend you make the big bucks, and your Marginal Tax Bracket is 43.7%.

      When you get your tax refund- if you work as an employee, you will get $4370 back, meaning you will have tax savings of $4370.

      This works by multiplying $10,000 x 43.7%= $4370.

      (It’s just like an RRSP- whatever you contribute, you get a tax savings of your marginal tax bracket)

      However, there’s a catch.

      When you sell your flow through shares- let’s assume for simplicity’s sake that you neither make nor lose money on the $10,000 you invested, the adjusted cost base is $0- so the capital gain is considered $10,000.

      So that tax you would have to pay when you sell is:

      $10,000/2=$5000x 43.7%=$2185.

      So you got $4370 back from the government, but when you sell, you have to pay a capital gains tax of $2185. Therefore, the net income advantage is $2185.

      The seabridge offer has a very short holding period and I would guess that many of this shares will be sold over the market in a very short time.

    • Flow-through share placement is the way Canada subsidizes mining exploration on own turf. Buyers of these shares can deduct qualified expenses (exploration expense incurred by company) from their personal income tax and this benefit can easily surpass 20% mark for individuals in high tax brackets, therefore companies can sell shares with premium to market. Please note that this benefit is available only for companies having exploration projects in Canada; it is not allowed for Canadian companies with projects in Mexico, U.S., etc; and obviously this benefit is not available for U.S. citizens, no matter where they invest.

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