A scheme to save 100 percent of income tax? No thanks
Larry MacDonald wrote a post today on a scheme to reduce up to 100 percent of your income tax. The scheme purportedly involves purchasing tax losses from R&D firms and when Larry asked the promoters if it would pass muster with the CRA, they claimed that “CRA should not disallow the tax deductions”. No surprises there. That’s precisely what promoters behind tax shelter gifting arrangements claim (see Beware of tax shelter donation arrangements, 19 August 2008) and the CRA has a long record of reassessing taxpayers and denying the donation.
Even if we ignore the elephant in the room — the obvious risk that CRA would subject any tax avoidance scheme to extra scrutiny — a scheme with a long history already exists that allows taxpayers to save (up to) 100 percent of their income tax. It is called flow-through shares (FTS) and it allows certain corporations involved in mining, oil and gas, renewable energy and energy conservation sectors to transfer exploration and development expenses to investors in return for equity investments. The investors are allowed to deduct the renounced exploration expense from their income.
If saving on income taxes are the main goal, FTS provide a much less risky way to do so. However, FTS are not without investment risks as I pointed out in this earlier post (See Comment on Flow-Through Funds, 26 March 2007).