One thing going around this time of the year is tax schemes like flow-through shares.
A simple word of advice – never make an investment solely for tax savings.
Always look at the investment first and the tax benefits last.
I recently asked an accountant to review a flow-through share offering that one of my clients was given the opportunity to buy. Here’s what he said:
1) The number one selling point for this is the 57% tax savings on the investment. It is never a good idea to invest just for the tax savings. Tax savings is a common marketing ploy.
2) There is a push to do it by November 30th or it will be SOLD OUT. This is another classic marketing ploy.
3) Most of the actual investments will be junior mining resource companies, most of which I suspect don’t make money, and many of which I suspect don’t even have revenues yet.
4) They target these things to high income earners near the end of each calendar year.
5) We don’t recommend cyclical investments around here; we recommend investments which consistently generate positive cash flow from operations and pay dividends to shareholders.
6) Just because these cyclical resource companies are down and beat up the last few years as compared to defensive (ie quality companies) doesn’t necessarily mean they are due to bounce back up.
7) The reasons why the 2012 offerings will be better than previous offerings are subjective in nature. For example, how can you measure “skilled management” or a “sound exploration plan?”
8) If they invest the minimum $10,000, yes, he will likely save $5,700 in taxes so he stands to lose $4,300 on a net basis rather than $10,000. Still, losing $4,300 is not recommended – see reason 1 above.
Sage advice!