NEWS WATCH
The Canadian parliamentary finance committee announced that it will sponsor a series of public hearings and provide a platform for interest groups and financial experts to comment on a decision by federal Finance Minister Jim Flaherty to impose taxes on income trusts in 2011.
COPY OF LETTER TO MEMBERS OF PARLIAMENT
I am writing to you as the volunteer President of a not-for-profit, non-partisan research and education organization, iTrust Institute. The Institute was formed in response to the Department of Finance Consultation on Flow-through Entities in 2005 in the interest of supporting informed policy formulation and decision-making.
A professional engineer working with a major gas producer writes: Imagine a nation whose citizens took pride in owning dynamic businesses that formed a significant part of its own economy - businesses dedicated to running efficiently and giving the resulting profits back to the people: A people who enjoyed a level of income from investment that afforded them a decent standard of living, replacing or supplementing their employment income, and topping up social security and pension income from their Government as they entered retirement. Until recently, Canada was this nation…
And he concludes a well-informed letter to suggest that the Canadian, ”government has just launched a devastating attack on the standard living and quality of life after retirement of most Canadians. The brunt of the attack is borne immediately by senior citizens, and those who for various and valid reasons cannot or choose not to enter the workforce. For the rest of us the effect will be delayed, but should start becoming apparent when the November financial statements arrive.
In summary, income trusts do not represent a significant tax issue to the government. More income generally means more income tax! More income in the hands of individual Canadians means a higher standard of living...and isn’t raising the standard of living of everyone really what it’s all about?
In 2005, the Canadian Association of Retired Persons (CARP), otherwise known as Canada’s Association for the Fifty-Plus, did not come out with a terrible strong call for protection of income trusts against new tax. Now in 2006, seeing the consequences of new taxes on the savings of Canadians, CARP has changed its position.
Amid all the talk about the tax leakage and problems for small investors and the government due to income trusts, we see that the Canadian Pension Plan Investment Board (CPP IB) has prposed to the federal government that it should spin-off and build a real estate investment trust (REIT). The CPP invests on behalf of 16 million working Canadians and not only holds income trusts of all kinds. With business trusts in its equities portfolio, the CPP has turned the public pension fund from deficit to surplus during the 10 year rise of income trusts.
iTrust Institute is studying the key features, perceived potential & benefits of income trusts starting from the premise that:
Equities managed and structured like income trusts to flow net gains through to owners by way of frequent and regular distributions of cash can offer superior rates of overall return, support market growth, enhance economic productivity and contribute to growth of the tax base with less risk than other equities given honest managers and a fully competitive market supported by open communications.
We will test this notion and explore related questions.