Following its study of income trust taxes, the Finance Committee has released its report on findings and recommendations: “Taxing Income Trusts: Reconcilable or Irreconcilable Differences?” (PDF, 183 KB in printable format).  Two significant alternatives are offered to the pending 31.5% on distributions to income trust owners. The Committee is recommending in this report that change from the current tax scenario is essential.  The current policy was as “devastating” to Canadians as it was shocking in breaking a Conservative election promise.

Specifically, the paper proposes that either the 31.5% tax be reduced to 10% or the government should extend the tax-free period for trusts from 4 years to 10 years. These are two proposals previously announced as suggestions from the Opposition Liberal Party and Bloc Quebecois, respectively.

Overall, the report recognizes the Prime Minister Steven Harper’s Conservative government set tax policies hurt Canadians. In addition, the report calls for the government to release information to support its calculations of tax losses due to income trusts. During public hearings it became clear that Department of Finance officials may have made mistakes and that if they did then they “would not admit it”.  And public requests for background details garnered documents with blackened out statistics.

The report recognizes both direct testimony to the Committee through hearings, as well as written submissions including that from iTrust Institute.

While the report includes suggestion that remedies are required to reduce the impact of taxes on trusts, the report supports the notion of a moratorium on new trust issues.

Despite hearing the facts and concerns of Canadians and despite their participation in the Finance Committee, the Conservative Party and the NDP are rumoured to be making their own recommendations in a report.  The two parties are working together to suggest that trusts “are bad” and that tax on trusts is necessary and fair.  Neither group, however, seems able to follow-through on election promises and maintain economic protections for Canadians, let alone deliver policy that reduces tax on working or retired Canadians.

During public hearings on income trusts, the Finance Committee received testimony and submissions that suggested that the trusts tax was a tax on individual Canadians, despite Conservative suggestion that the tax was like a corporate tax on companies with trust issues.

The report says that, “It is imperative that a democratic government be as transparent as possible when levying a new tax so that it can be held to account by its citizens.”

The document further suggests that the members of parliament should be given opportunity to vote on the trust tax itself without mingling the vote with other proposed reductions in tax.