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Tax Shelter Finance: How Efficient Is It?


  • Glenn Jenkins

    () (Queen's University, Kingston, On, Canada)


Of the various types of financing instruments generally used because of the particular tax treatment they receive two of the more popular are limited partnerships and flow-through shares. This article attempts to evaluate their efficiency- that is, to determine the present value of tax revenues given up by the government per additional present –value dollar received by the developer of the real estate or mining project as a result of the tax shelter financing instrument. An analytical framework is developed for each type of financing instrument. The outcomes using tax shelter financing are compared with the situation using normal equity financing. The framework is then used to examine nine actual cases of limited partnerships dealing with real estate investments in Canada and seven actual flow-through share funds. The developer’s expectations of the future value of the property are a key variable determining the efficiency of a limited partnership. Even if the developer expects the real value of the property to fall to about half its current cost, the Canadian government will lose about $2.50 in tax revenues for every $1.00 gained by the developer. In the case of flow-through shares the average cost to the government in lost revenues is between $1.83 and $2.68 per $1.00 of net benefit received by the resource company. These results indicate that such tax shelter finance instruments are not efficient vehicles for allowing companies to utilize tax losses. Instead of continuing such tax shelter, the authorities should consider designing more efficient after-tax financing instruments, introducing a greater degree of direct refundability of losses, or eliminating the tax incentives that create the tax losses.

Suggested Citation

  • Glenn Jenkins, 1990. "Tax Shelter Finance: How Efficient Is It?," Development Discussion Papers 1990-02, JDI Executive Programs.
  • Handle: RePEc:qed:dpaper:83

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    Cited by:

    1. Tedds, Lindsay M., 2017. "The Tax Treatment of Non-Renewable Resource Exploration Expenditures in Canada: A Historical Review and a Way Forward," MPRA Paper 96912, University Library of Munich, Germany, revised 17 Dec 2017.
    2. Glenn Jenkins & RANJIT LAMECH, 1994. "Green Taxes And Incentive Policies: An International Perspective," Development Discussion Papers 1994-02, JDI Executive Programs.

    More about this item


    tax shelter; partnerships; shares; Canada;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies


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