On the hot summer days of my childhood in North Vancouver, often my friends and I would take the 20 minute walk to the forested trails of Lynn Canyon Suspension Bridge. The damp shade of the rainforest trails provided some relief from the sun, and the abundance of semi-sweet huckleberries and salmon berries never ceased to delight.
The bridge itself was less visited than its more famous neighbor on the Capilano River a few short miles away, and we were there so often that, even though the swinging edifice was not always well kept, it didn't intimidate us. Secured by two heavy cables, the bridge was strung semi-taunt over the massive canyon walls of the creek, 160 feet below. I recall its swinging sidewalls being loosely governed by green mesh fencing which was worn out and sketchy. But the most egregious disrepair was the gaping hole in the plywood on one section of the floorway. It was the late 1960's and it seemed that people were just expected to be smart enough to step over the hole, which was roughly suited to fit a normal sized human freely through it. Our favorite mischief was to try and get the bridge moving a little, while nervous tourists made their way white knuckling it along the capricious structure, and over the dilapidated floor.
But the real payoff of a hot afternoon at Lynn Canyon was at the end of a short hike upstream along the pristine waters of the creek to an area we affectionately referred to as Thirty-foot Pool. Here, after the waters rush through another spectacular canyon, they slow down briefly before tumbling onward to more canyons below. The mountain-fresh stream is a swimming hole made of perfect living beverage, eliciting salivation, temptation.
Not content to merely swim, a cliff on one side of the pool beckoned foolish young men (present company excluded) to edge their way along its jagged walls, upward. From that vantage point, the crystal-clear pool looks up at you, enticing. The area had several signs cautioning divers against the risks of death, but these were usually ignored. Locals knew that they had to dive two or three feet away from the sidewall of the canyon in order to avoid the rocks which protrude inward just below the surface of the water. Misjudge, and pay a lethal price. The waters called. The pool's mouth gaped heavenward - with teeth hidden below the shiny surface.
Sadly, some missed their target. The deceptively beautiful little creek has habitually taken the lives of dozens of young thrill seekers over the years and continues to do so to this day, snuffing out on average one young life each year.
Irresistible enticements are by no means limited to the cool waters of BC's coastal mountains. Some investment ideas offer spectacular advantages, but if an idea purports the potential for unusually high returns, you can also assume that it carries unusually high risks. In any sort of efficient market this just has to be so. Chubby returns attract money, which bids up the purchase price of the investment and thus knocks down the ultimate profit.
One perfectly legitimate example of this is a Flow-Through Share.
There may be a year where your income is high and you are hoping to curtail your taxes. You could have an unusually high salary or bonus, employee stock options, capital gains, business income, or what-have-you, reported on your income tax return. In order to reduce the associated taxes, you may wish to hunt for other tax deductions or tax credits that you can legitimately claim.
Flow-Through Shares - Explained:
Canada has a strong history of natural resource development. Mining and oil exploration projects require a very long and expensive up-front investment, which is sometimes difficult to fund. These companies often carry significant losses for several years in a row, and must wait for profitability to come (if it ever does) before they can claim the losses against profit to reduce taxes. Decades ago, regulators approved a method by which such companies can transfer their losses to Canadians with taxable income, in exchange for investment dollars flowing their way. Want an extra tax deduction? A Flow-through can provide that for you, but beware.
If you are considering purchasing these investments, you should realize that not all are created equally and as a result an impulsive purchase might be costly. It is very important to consider the quality of the investment, and not just the potential write-off. As the saying goes, "A good tax shelter which is a bad investment is really just a bad tax shelter."
Said another way, ignore the tax shelter and treat the investment on its own merits. No matter how stunning the idea appears on the surface, a deeper dive makes sense. Once you snorkel around a little, you may decide that it is better to just let the idea flow right on by.
Mark Ryan is an advisor in Prince George with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
