You also have to look to his underlying assumptions. He is using the same ownership ratios that were used in the CCRA study last year. The ratios are not supported by a survey done of ownership in the big 5 bank dealers. They indicated a 70% taxable to 30% tax deferred ratio. Mintz used 39% non-taxable. A 10% change in the ratio affected the CCRA study by about $200 million. Mr. Mitz acknowledges that the major so-called tax leakage occurs because of so-called non-taxable ownership. A few of things to consider:

1: We have encouraged tax-deferred savings, why does it have to occur at the corporate level rather than at the personal level. These savings have a 100 % certainty of being collected by CCRA, the same cannot be said of corporate savings. The tax deferral occurs at a time when the country is in financial surplus and will be collected at a time when the income is required to support an older population with fewer wage earners.

2: Is the income actually “trapped” in pension plans? If they do not generate sufficient income to pay benefits then they are dependant on selling assets to fund benefit payments. Ontario Teachers is the largest holder of trust units amongst pension plans and clearly does not trap income. In 2005 they generated portfolio income of $3.9 billion and paid benefits of $3.6 billion. The leakage should be calculated on the net impact.

3: Why is it acceptable for foreign capital and private equity capital to use interest stripping in order to avoid current taxation and not acceptable for Canadian retail investors to use the same tool?

I would also point-out that the trend to free trapped capital is not a trust phenomenon.

The trusts evolved as a public market version of the private equity interest stripping model. In this public market participants finally were given the tools previously available only to large investors. Interest stripping is also the tool that foreign owners of companies domiciled in Canada use to minimize income earned in a high tax principality (Canada) and repatriates free cash flow pre-tax. Look for Xstrata and CVRD to materially change the balance sheets of the companies they are purchasing. Inco and Falconbridge will likely pay a small fraction of today’s taxes. In the case of Inco, they paid corporate tax of $408 million last year. Single B Inter-company debt of $13.5 billion (75% Debt: 25% Equity for the $18 billion cash bid) at a coupon of

What we have in Canada is a pool of overcapitalized companies that are not investing effectively for productivity, growth or possibly in the best interests of shareholders. We have management who are not entrepreneurial owners of businesses but option holders who are attempting to maximize their proceeds on exercise. This has not escaped the attention of smart fast money. Overcapitalized moribund companies are easy prey for the sharks, and the sharks have been circling. Strangely the best defense could be trust conversion; you attract a higher valuation on net free cash flow that is no longer trapped in a moribund entity but has been freed to be re-cycled into the broad economy. I have been in this business for over 30 years and I can tell you that in that time I have yet to see innovation come from trapped capital. Buying used assets is not innovation.