COST-EFFECTIVENESS OF AFTER-TAX FINANCING: FLOW-THROUGH SHARES IN CANADA

Glenn Jenkins ()

No 1987-01, Development Discussion Papers from JDI Executive Programs

Abstract: This paper evaluates the efficiency of flow-through shares as an after-tax financing instrument. This instrument was designed to assist non-taxable mining and petroleum companies in benefiting from various tax incentives given to these sectors. Efficiency is measured here as the ratio of the present value of the incremental loss in tax revenues incurred by the government, to increase in the present value of the tax benefits received by the corporations that issue flow-through shares. From this analysis, it is clear that the government could reduce its waste of tax revenues substantially through the design of a more efficient system of getting cash in the hands of non-taxable operating companies, in exchange for the companies giving up their tax deductions. The increased use of direct refundability for such tax deductions is an obvious alternative. There are indications from this study that a rate of direct tax refundability substantially lower than the normal value of these tax deductions to a fully-taxable firm would be more advantageous to most non-taxable firms than the use of flow-through shares.

Keywords: after-tax financing; flow-through shares; Canada (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1987-06
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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