November 2.2006
Income Trusts & Tax Fairness
Below is the
precise announcement by the Finance Minister, and if you are seeking
any additional information, it can be found via links below.
In short, the
decision was necessary. We are closing a corporate tax loophole
that, over time, would have shifted Canada's tax liability to
individual Canadians at a rate that is unjust and intolerable.
Without these changes the government's finances would be in serious
jeopardy over time, and by necessity, taxes for individual Canadians
would increase. Instead of this, we are taxing Income Trusts,
closing this corporate tax loophole, and LOWERING taxes immediately
for Canadian seniors, and protecting young Canadians from future tax
hikes.
There are many
details to this decision, but it is sound public policy that is
absolutely necessary.
Sincerely,
James Moore MP
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Below are
comments on the announcement:
“The Tories
have done the right thing.”
John Ibbitson, (Globe and Mail 2/11/06)
“This
decision was exactly right. Sure, the government had to eat crow,
having campaigned against any change, but corporate Canada's desire
to pay as little tax as possible was getting out of hand. The
Liberals knew this while in power, wobbled before the "senior's
lobby" and caved.”
Jeffrey
Simpson (Globe and Mail)
“Most
Canadians will eventually come around to the realization that income
trusts were a mistake, the product of botched tax policy. Flaherty
fixed the policy, shut down the tax-chasing operators and cleaned up
what was becoming a major economic problem.”
Terence Corcoran, (National Post 2/11/06)
“Tory
Finance Minister Jim Flaherty has done a big favour for Canada’s
economy.”
Jay Bryan, (Montreal Gazette 2/11/06)
“Jim
Flaherty is exceedingly brave… The man did the right thing.”
Eric Reguly, (Globe and Mail 1/11/06)
“Flaherty
chose difficult and right in stopping the income trust juggernaut.”
Jim Travers, (Toronto Star 2/11/06)
“Seniors
built this country and deserve to enjoy their retirement. I am
pleased that Minister Flaherty has acted to allow pension income
splitting. It is in the best interests of all Canadian seniors, who
will be better off under the government's plan.”
Gerry Brissenden, President - Canadian Snowbird Association
“It’s a
gutsy move.”
Al Rosen – Rosen & Associates - Tories Targeting Trusts (Toronto Sun
1/11/06)
“It’s a
positive step, what Flaherty is doing.”
Al Rosen – Rosen & Associates - Tories Targeting Trusts (Toronto Sun
1/11/06)
“Income
pension splitting will save some couples literally thousands of
dollars. I mean, it’s a big tax break.”
Don Drummond, Chief Economist – TD Bank (CBC News Morning 11/1/06)
“You can
debate the merits of the action, but I think that to come out with a
clear statement was absolutely, terrifically positive.”
Don Drummond, Chief Economist – TD Bank (CTV’s Canada AM 11/1/06)
“I think
that any effort to equalize the playing field from a tax perspective
between corporations and trusts … is a positive thing.”
Jeffrey Olin, Head of Investment Banking – Desjardins Securities
Inc. (Globe and Mail 1/11/06)
“I think
it’s a smart move.”
Gene McBurney, Chairman – GMP Capital Trust (Globe and Mail 1/11/06)
“The
Government really had no option but to act, and to act quickly.”
David Perry – Canadian Tax Foundation (Vancouver Sun 1/11/06)
“They are
trying to level the playing field.”
Stan Laiken, Tax Professor - University of Waterloo (Toronto Star
1/11/06)
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Ottawa, October 31, 2006
Statement by the Honourable Jim Flaherty, Minister of Finance
Ottawa, Ontario
Check against delivery
Good evening:
I
am here tonight to announce our new Tax Fairness Plan for Canadians.
It’s a plan designed to level the playing field between
income trusts and corporations.
The measures I am bringing forward today are necessary to restore
balance and fairness to Canada’s Tax System. They are necessary to
ensure our economy continues to grow and prosper. They are necessary
to bring Canada in line with other jurisdictions throughout the
world.
Our plan is the result of months of careful consideration and
evaluation. Our actions are clear, decisive and in the best interest
of all Canadians.
Despite the provisions in Budget 2006 to reduce the level of
taxation on corporate dividends, the landscape has changed
dramatically in the short time I have been Minister of Finance. This
year alone there has been almost $70 billion in new trust
announcements.
We have seen a growing trend towards
corporate tax avoidance. Top Canadian corporations, operating
within the current rules, have announced their intention to convert
to
income trusts. They feel compelled to seek more favourable tax
treatment by capitalizing on an available tax rule.
This trend has now moved into the core of our industrial and
knowledge-based economy. It is a trend that has caused me growing
concern. If corporations don’t pay their share of taxes, this tax
burden will shift onto the shoulders of hardworking individuals and
families.
This is simply not fair.
This trend towards income trusts is also creating an economic
distortion that is threatening Canada’s long-term
economic growth. It is limiting the ability of Canadian
capital-intensive corporations to invest, to grow and compete in
this highly
competitive global economy.
If we continue down this road the implications for Canadians are
significant. We will find ourselves with a tax system that is less
fair and an economy that is less productive and
competitive. Left unchecked such corporate decisions would
result in billions of dollars in less revenue for the federal
government to invest in the priorities of Canadians, including more
personal income tax relief. These decisions would also mean less
revenue for the provinces and territories, several of which have
made representations to me on this matter.
Clearly, Canada is out of step in its treatment of income trusts.
The structure being used in this country was shut down in the United
States and Australia.
This situation is not right and it is not fair. It is the
responsibility of the Government of Canada to set our nation’s tax
policy, not
corporate tax planners.
In response, I am putting forward our government’s Tax Fairness
Plan:
First of all, the government is proposing to apply a Distribution
Tax on distributions from publicly traded income trusts. This will
level the playing field between trusts and corporations.
For income trusts that begin trading after today, these measures
will apply beginning with their 2007 taxation year. For existing
income trusts the government is proposing to provide a four-year
transition period. They will not be subject to the new measures
until their 2011 taxation year.
Secondly, as part of our Tax Fairness Plan we will be reducing the
general
corporate income tax rate one-half percentage point as of
January 1, 2011. As a result of this measure, there will not be more
government revenue generated from the corporate sector.
Thirdly, we are increasing the
Age Credit Amount by $ 1,000 from $4,066 to $5,066 effective
January 1, 2006. This measure will provide tax relief for low and
middle-income seniors.
Finally, we are introducing a major positive change in tax policy
for pensioners. We will permit income splitting for pensioners
beginning in 2007. This will significantly enhance the incentives to
save and invest for family retirement security.
We recognize that pensioners and seniors have made important
investments over the years and may be receiving benefits from
the current income trust structure. These two measures will allow
them to retain more of their income in their retirement years. This
is a significant step forward in the strengthening of our
social security system for pensioners and seniors.
These measures will enhance the seniors’ initiative we introduced in
Budget 2006. At that time we doubled the amount of eligible pension
income that can be claimed under the
pension income credit – from $1,000 dollars to $2,000 starting
in the 2006 tax year.
Our government firmly believes tax relief is one of the keys to
ensuring the Canadian economy remains strong and competitive. I will
have more to say about our
competitiveness when I present the government’s Fall Economic
Statement and release our Economic Plan for Canada in the next few
weeks.
These measures represent a major tax reduction. Our Tax Fairness
Plan will deliver over a billion dollars of new tax relief annually
for Canadians. The initiatives I am announcing today clearly build
on our tax relief package outlined in Budget 2006. We delivered
significant tax relief for Canadians with 29 tax cuts amounting to
$20 billion in tax relief over the next two years.
But more needs to be done.
Families and businesses still pay too much tax in this country, and
our government will continue to reduce the tax burden on Canadians.
At the same time, we must ensure that no one gains an unfair tax
advantage at the expense of others. It’s a responsibility we cannot
and will not abdicate.
Each and every day Canadians across the country get up and go to
work, pay their taxes and set aside a few dollars for retirement.
They trust that their government is watching out for them and
upholding the values that make our country great. The values that
define us as Canadians, like fairness.
The Tax Fairness Plan I am announcing today will uphold the value of
fairness.
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It will level the playing field between income trusts and
corporations;
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It will ensure that taxes are not unfairly shifted onto the
shoulders of Canadian families and taxpayers;
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It will strengthen Canada’s
social security system for pensioners and seniors;
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It will help corporations make choices that are consistent with
economic growth and competitiveness; and
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It will bring Canada’s approach to income trusts back in-line
with other jurisdictions.
Canada’s New Government understands that good government and good
policy are about being focused, determined and decisive. Our Tax
Fairness Plan is not only the right thing to do, it is in the best
interest of all Canadians from coast to coast to coast.
Thank you.
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For more
information, email
moorej@parl.gc.ca or call 613.992.9650
