Monday, November 13, 2006

Income Trust Idea

The National Citizens Coalition is urging Finance Minister Jim Flaherty to adjust his proposed Income Trust legislation.

Here's a news release the NCC sent out on Friday:

NCC: Allow Longer Phase In Period for Income Trust Changes

(November 10, 2006)The National Citizens Coalition says the Conservative government should change its proposed Income Trust legislation to allow for a longer phase in period.

“While we support the government’s attempts to fix potential long term problems in the Canadian economy, the proposed income trust changes will have a negative impact on the investment portfolios of seniors and other hard-working Canadians,” says NCC president Peter Coleman.

“That impact could be minimized by increasing the phase in period from four years to ten years, meaning no new taxation on existing income trusts until 2016.”

Coleman says such an increased phase in would not undermine what the government is trying to accomplish with its proposed income trust legislation in terms of preventing tax avoidance, but it would give income trust holders time to make appropriate financial adjustments.

“We hope Finance Minister Jim Flaherty will consider this recommendation before his scheduled November 23rd economic statement,” says Coleman.


-30-

7 comments:

Geoffrey Laxton said...

Here is a response from the first Member of Parliament to ever respond to my numerous emails since the new Income Trust and Tax Fairness Policy:

Thank you for your email regarding income trusts and the Tax Fairness Plan which was recently announced by the Minister of Finance.

I understand that this announcement came as a great surprise and caused many people a significant drop in the value of their investment portfolio. The Minister of Finance found the decision to amend the tax rules for Income Trusts to be painful, but ultimately he was required to act in the long term best interest of all Canadians and the Canadian
economy as a whole.

We are particularly sensitive to the fact that many seniors had invested heavily in Income Trusts and that the value of some seniors' investments has been significantly affected. In an effort to assist seniors with
Income Trust investments, the Tax Fairness Plan announced by the
Minister included provisions allowing income splitting for eligible pension income starting in 2007 and an increase in the Age Credit to $5,066 for low and middle income seniors retroactive to January 1, 2006.


The reason the Government was forced to proceed in this manner was because of the increasing number of major Canadian corporations that have announced plans to convert to Income Trusts. This year alone, several major Canadian companies made announcements -worth $70 billion
dollars- of conversions to Income Trusts. The increasing frequency of
announcements by major Canadian corporations in key strategic economic sectors threatened to erode the corporate tax base and shift an even greater percentage of the tax burden to individual Canadians.

It was also becoming increasingly obvious that foreign investors were
buying stakes in Income Trusts because they were a nearly tax free
investment. For the benefit of Canadians, we could not allow the profits of Canadian enterprise to leave the country virtually tax free.

In order to mitigate some of the short term financial losses to
individuals and corporations, existing income trusts and limited
partnerships are not to be subject to the new measures until the 2011
taxation year. Moreover, the basic corporate tax rate in Canada will be lowered to 18.5% staring in January, 2011.

While our Government knew that amending the tax rules for income trusts would be difficult and have a financial impact on many Canadians, these amendments are essential for the long term viability of the Canadian
economy.

I sincerely appreciate that you took the time to express your views on this issue. As a Member of Parliament, I welcome feedback from Canadians and hope that this letter provides you with a better understanding of the Government's decision to amend the tax rules for Income Trusts.

Yours truly,

John G. Williams
Member of Parliament

Geoffrey Laxton said...
This comment has been removed by a blog administrator.
Geoffrey Laxton said...

oops here is my response..
“Time to change direction: the unfairness of income trusts.”
Jack Mintz
From the October 23-November 5, 2006 issue of Canadian Business magazine

http://www.canadianbusiness.com/columnists/jack_mintz/article.jsp?content=20061023_82041_82041

Perhaps Finance Minister Jim Flaherty should have implemented all of what Jack Mintz had to say about income trusts, instead of lying to income trust holders and fleecing them for billions of dollars on the market and imposing tax on them in an unfair manner!

“The last thing a minority government would like to do is to attack income trusts with special taxes imposed on distributions. I think there is a better way to go, and that is to create a truly level playing field, making it equally attractive to be a corporation as it is a trust under the tax system, and letting businesses and investors decide how best to organize themselves. Several policies are needed to achieve neutrality, but they are not out of reach.

The first option would be to make it attractive for pension and RRSP accounts to hold corporate securities rather than just income trust units. This can be achieved by following the past European practice of providing a “refundable” dividend tax credit, matched to actual corporate taxes paid, so that investors are able to receive the credit even though they pay little or no personal taxes. That represents a fairly significant change to the tax system, but it would have a dramatic impact in reducing tax distortions in financial markets.

The second set of policies is to remove tax distortions on income trusts. The main reason trusts have had to distribute at least their income is that they would otherwise be heavily taxed on any retained taxable income. Not only is retained income subject to the top personal tax rate where the trust resides, but any distributions made in later years from retained profits will result in higher capital-gains taxes for investors. Just as the tax system discourages companies to pay out dividends, it also distorts income-trust decisions to reinvest profits in capital or distribute them.”

Miles Lunn said...

Finally the National Citizens' Coalition agrees with the Liberals. I believe this was the position that John McCallum outlined on CTV's question period. However, the Bloc Quebecois and the NDP supported the Tories on the Income Trust changes so it is pretty much a done deal.

Anonymous said...

To date I am pretty much happy with the accomplishment of the Federal Government. Some difficult decisions and policies were made that may not be well received by some Canadians.

The recent introduction of the Income Trust and Tax Fairness Policy is one such policy that I must disagree with.

This change towards an investment vehicle has drastically altered the financial portfolio and timeline towards wealth appreciation of many Canadians and International investors.

Was this really the only choice available to the Federal Government inorder to reduce the number of business changing the less favourable Corporation tax structure to a more favourable tax incentive structure?

These type of policy changes reduces investors confidence in the financial market of that country.
I am forced to invest in the international market to reduce exposure in an uncertain Canadian financial market.

Will Canada lose jobs to other markets where the tax structure is more rewarding for the Investors.

Is the administrators of the Canada Pension Plan willing to invest in a market that gives a 10% or 45% return on investment?

In the playground when 2 kids are on one side of the see saw vs. 1 kid on the other side, it is preferably to lighten the load on the heavier side than add more weight to the lighter side as this method would evetually lead to the destruction of the playground equipment.

The reduction of investors in the Canadian financial market is an indication of weakness in the system.

Reduce the load in the system and let Canadians reap the fruits of their investments, afterall most of the monetary gains will be spent in the local market which will automatically produce jobs and increase productivy in a weak market.

The engine of the global economy is running at full steam in the ASIAN continent, while the North American economy is busy spending taxpayers dollars appeasing special interest groups & Activists on Environmental and refugee resettlement.

I can no longer provide for my family on a low income part-time job, and there are too many applicants after the high paying goverment jobs with full medical and pension benefits paid by my low taxes (GST/PST)from a low income job.

Thankfully I am still able to invest in the international market place via a Canadian mutual fund.

Geoffrey Laxton said...

Here is a letter I received from the Prime Minister after sending numerous messages to him concerning the new income trust policies he wants to implement. He did not answer any of my questions concerning the issue, but he did send me the same response via snail mail that was actually signed by him.

From : Prime Minister/Premier ministre
Sent : November 21, 2006 9:49:54 AM
To : "Geoffrey Laxton"
Subject : Office of the Prime Minister / Cabinet du Premier ministre


Go to previous message | Go to next message | Delete | Inbox

Dear Mr. Laxton:

Thank you for your e-mail message regarding the government's decision on income
trusts. I am pleased to have this opportunity to respond.

I understand your disappointment with this decision. We recognize that Canadian
investors, including many pensioners and seniors, have made important
investments over the years and benefit from the current income trust structure.
However, Canadians must trust that their government is watching out for them and
is upholding the values that define us, like fairness. They expect us to fix
problems, right injustices and close loopholes.

As you know, over the past few months we have seen a clear tax avoidance trend
in the creation of new income trusts. Corporations are converting to these
structures and the decisions are based largely on tax considerations. The sheer
number and size of the Canadian companies attempting to gain short-term tax
benefits was threatening Canada's long-term economic growth. Corporations have
used this tax rule to create an economic distortion. This year alone there have
been almost $70 billion in new income trust announcements.

Canada's New Government strongly believes that the tax system must be
progressive, fair and competitive. It must provide the right incentives to
create an economic advantage for companies to invest and grow. The tax system
must create an advantage for Canada, not an unfair advantage for some Canadian
corporate taxpayers. The current income trust situation is not fair.

When corporations don't pay their share of taxes, this burden is shifted onto
the shoulders of hardworking individuals and families. We have taken decisive
action to protect the best interests of all Canadians. Our Tax Fairness Plan
will restore balance to the federal tax system and level the playing field
between income trusts and corporations.

Our plan is the result of months of careful consideration and evaluation. The
measures we have chosen represent a major tax reduction. The Tax Fairness Plan
will deliver over $1 billion of tax relief annually to Canadians. The plan
includes:

1) A distribution tax on distributions from publicly traded income trusts.
2) A reduction of the general corporate income tax rate of one half
percentage point effective January 1, 2011.
3) An increase in the Age Credit Amount by $1000 from $4,066 to $5,066
effective January 1, 2006. This measure will provide tax relief for low
and middle income seniors.
4) The government will permit income splitting for pensioners beginning in
2007. This will significantly enhance the incentives to save and invest
for family retirement security.

The Tax Fairness Plan restores balance and fairness to Canada's tax system. It
will ensure that our economy grows and prospers, while bringing Canada in line
with other jurisdictions. It is the responsibility of the Government of Canada,
not corporate tax planners, to set our nation's tax policy. Taxes must not be
shifted unfairly onto the shoulders of individuals and families. We have
developed a plan that upholds the value of fairness and delivers major positive
changes in tax policy.

Once again, thank you for taking the time to share your thoughts. I invite you
to visit the Department of Finance website at
http://www.fin.gc.ca/news06/06-061e.html for full details regarding the Tax
Fairness Plan.

Sincerely,


The Rt. Hon. Stephen Harper, P.C., M.P.
Prime Minister of Canada

Geoffrey said...

Unfortunately, the "traditional" corporate model discourages Canadian investment in publicly traded Canadian companies (Capital gains tax, dividend tax, interest tax, and now income trust distribution tax) that they become so undervalued that those that do hold them for the long term may only be rewarded by management selling them off to foreign interests at above market prices!

The income trust model did not allow this to happen and now that this model is being destroyed by our own government, we are going to lose even more Canadian companies to foreigners and the federal and provincial tax base shall erode even further.