Canada Commons Committee Calls For Reduction In Income Trust Tax

by Mike Godfrey, Tax-News.com, Washington

02 March 2007

Canada's Conservative government must immediately follow the House of Commons Finance Committee’s recommendations to implement a fully-refundable 10% tax on income trusts in place of its destructive 31.5% tax, Liberal Finance Critic John McCallum said Wednesday.

“The 10% plan is good public policy that would help investors hurt by the Conservatives’ broken promise, level the tax playing field, protect an income stream that seniors have come to depend on, and help to prevent the decimated income trust sector from being bought up by foreign interests,” McCallum stated following the tabling of a report by the Standing Committee on Finance, which urges the government to drop its proposal for a 31.5% tax on income trusts beginning in 2011.

The report advocates the implementation of a 10% tax – fully refundable to Canadian investors – in place of the Conservative plan. This follows a similar recommendation put forward by Liberal Leader Stephane Dion on February 13.

According to the Liberals, the 10% plan has received support from both the Canadian Association of Retired Persons and the Canadian Retired & Income Investors' Association. Both RBC Dominion Securities and BMO analyst Gordon Tait have confirmed that such a plan would return two-thirds of the C$25 billion that investors lost the day after the Conservative announcement. CIBC World Markets called the plan a “balanced approach” to income trusts.

“Prime Minister Stephen Harper gave his word that he would not tax income trusts and when he broke that promise C$25 billion of investors’ money went up in smoke. Now it’s time for Mr. Harper to swallow his pride, listen to the advice of the Finance Committee and Canadians, admit that his policy is wrong, and move to do what is right for Canada,” McCallum remarked.

The Standing Committee report recommended that the government table any legislation dealing with tax income trusts in a stand alone Bill; release the data and methodology it used to calculate the tax leakage it has alleged occurs due to the income trust sector; and consider the 10% plan and extending the phase-out period to 10 years.

McCallum also noted that the centre-left New Democratic Party has supported the Conservative government’s policy on income trusts, despite the number of low- and middle-income Canadians who depend on these investments for income.

“The NDP must realize that they have an opportunity to live up to their motto and actually get results for people by endorsing the 10% plan,” concluded McCallum.

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