Saskatchewan is on a roll—and creating new opportunities for giving

A vital economy and growing mining sector provide an opportunity for philanthropists and PearTree Canada’s flow-through share donation platform.

First published in the Canadian Family Offices on October 16, 2024.

Many Canadians might not realize it, but Saskatchewan has quietly become one of Canada’s great economic success stories. From 2021 to 2022, its economy grew more than any other province—by a remarkable six per cent—and growth continued in the volatile years that followed. Employment, too, has remained strong. 

Much of that economic resilience can be attributed to the province’s vast resources—agriculture, energy, forestry and mining—which have helped to create a surge in investment. According to the provincial government, private capital investment grew by almost 25 per cent in 2023 and is poised to grow by nearly 15 per cent this year. Mineral exploration is a particularly promising sector, because Saskatchewan is home to 23 of the 31 minerals on Canada’s Critical Minerals List—the building blocks of the greener, digital economy of the future. Minerals are so important to the province’s future that the government last year tripled the Saskatchewan Mineral Exploration Tax Credit (SMETC), from 10 per cent to 30 per cent, in an effort to encourage investment and create jobs for Saskatchewanians, particularly for Northern and Indigenous communities.

That could be good news not just for Saskatchewan and its economy, but also for the province’s charity community struggling with ever-increasing demand for services, says Ron Bernbaum, Founder and CEO of PearTree Canada, the leading facilitator and originator of Canadian giving through its flow-through share donation platform (FTSDP), which reduces the after-tax cost of donation while simultaneously funding mining exploration job creation.

PearTree’s flow-through share donation platform functions at the perhaps unlikely nexus between mineral exploration investment and charitable donations. Over the past two decades, it has evolved into an established and important enabler that helps high-net-worth Canadians donate to charities in a tax-efficient way and without the market risk normally associated with other strategies. Since its founding in 2007, PearTree Canada has completed more than 700 flow-through financings sourced for donation purposes and today accounts for more than $500 million in structured financings for donation purposes every year, supporting more than 2,500 Canadian charities while providing vital financing for the mineral exploration sector.

The promise of flow-through share donations began to emerge in 2006, in the wake of the federal government’s decision to make charitable donations of stock 100% exempt from capital gains tax. At the time, Bernbaum, a lawyer with a deep background in tax and finance, was on the board of a Toronto charity that was conducting a major fundraising campaign—“and we weren’t being very successful,” he recalls. An article by accounting firm PwC about the tax mitigation potential of flow-through shares for philanthropy had recently appeared, and a fellow board member mentioned it to Bernbaum: “They said, ‘Ron, you’re a tax geek. Do you know anything about this flow-through stuff?’”

The short answer was “not really,” but Bernbaum began to leverage his contacts in law, finance, and the mineral exploration sector to find out more. Eventually, a workable platform for incorporating flow-through shares into charitable giving crystallized, and it was “remarkably simple,” Bernbaum says. Crucially, both the Canada Revenue Agency and Revenu Québec ruled in favour of the model in 2008, following efforts spearheaded by Bernbaum.

Bernbaum started PearTree and its flow-through share donation platform nearly 20 years ago.

Here is how the structure works: A donor, who must be an accredited investor, purchases flow-through shares, generating a tax deduction equivalent to their value -as well as any applicable tax credits, like the Saskatchewan Mineral Exploration Tax Credit. Then, the donor gifts the shares to the charities of their choice, which then sell them to an accredited investor (usually global institutions, including family offices, which buy the shares at a discount stripped of tax value, thus reducing the risk associated with mineral exploration). All the steps happen the same day, without market risk. If there is no liquidity for the charity, then there is no subscription for the shares. The donor claims a charitable donation tax credit based on the final sale value of the shares sold by the charity. In effect, the donor “gets two deductions for writing one cheque,” Bernbaum explains.

Flow-through shares, which are issued by Canadian junior mineral exploration companies to finance exploration, are highly speculative investments, since the vast majority of exploration plays—as vital as they are to the mining industry—never turn into viable extraction operations. The issuing companies rarely have any revenue, so the bulk of their expenses, which are mostly labour and local service providers, generate a tax deduction they cannot use and which would otherwise be available to any other business. With flow-through shares, however, the company can raise capital and pass along the tax deductions and credits to investors, who under a long-standing federal policy can deduct from taxable income the full value of their investment.

PearTree’s FTSDP can significantly reduce the after-tax cost of a donation, even taking into account the federal government’s recent changes to rules governing the alternative minimum tax and the capital gains tax inclusion rate. For example, with a straightforward cash donation, the after-tax cost could run as high as 50%. Under PearTree’s FTSDP, however, in some provinces it drops to less than 10% of the donation amount net of all costs, including PearTree’s fees.    

For donor clients, PearTree facilitates every step of the process, making it efficient, convenient, and quick. The firm’s team of legal, mining sector, and tax experts work with clients to plan out donations for maximum tax efficiency, match flow-through share issuers and end-buyers with donors and charities, and broker negotiation on price and terms. Once those are agreed, the required transactions in the FTSDP are often completed in a matter of minutes. 

To assist charities, PearTree often works alongside staff and lay leadership in campaigns. “It’s just easier to raise money at 10 cents on the dollar of donation than 50 cents,” says Rebecca Schwartz, VP of Marketing & Communications, whose background, like others at PearTree, includes years working in the charity sector. 

Since PearTree’s first major financing in 2009, Bernbaum has watched the flow-through share donation space—and his firm—grow significantly. Today, PearTree facilitates about half of all mining exploration in Canada funded through the flow-through share tax regime.  

What’s the impact? For the mining sector, the firm has helped raise billions in exploration capital that provides high-paying jobs for Canadians in Northern, remote and often Indigenous communities. In addition, PearTree and its flow-through share donation platform have helped donors amplify their donation dollars for charitable causes. 

« The flow-through regime is where the money to create those jobs is coming from » Rebecca Schwartz, PearTree’s VP of Marketing & Communications

Now, Bernbaum sees Saskatchewan as the next frontier for flow-through philanthropy.

“Saskatchewan’s government has made it clear that mineral exploration is a major part of the province’s future,” Bernbaum says. “With progressive policies and generous incentives for investors in the sector, we believe that supporting good causes with flow-through share strategies will be a significant part of that future, too.”

To learn more or schedule a meeting, please contact Matthew Fireman, Managing Director, at matthew.fireman@peartreecanada.com or call him at 437.800.0789. 

This story was created by Canadian Family Offices’ commercial content division on behalf of PearTree Canada, which is a member and content provider of this publication.