Wednesday, November 01, 2006

U Happy?

Liberal leadership candidate Scott Brison must not be overjoyed that the words "Income Trust" are back in the news. The whole thing probably dredges up some rather unpleasant memories.

Ralph Goodale
had floated this idea back in the fall of 2005, but the process was so full of apparent leaks that it ended up dead in the water.

Last night Jim Flaherty announced that the government will impose a tax on income trust distributions. The move took the investment community completely by surprise and underlines the advantage of running a tight ship (don't you love the nautical metaphor?). Otherwise we would have seen the same chaos that happened under the Liberal government.

The Income Trust gravy train had to end (o.k. changing metaphors here):

In an unexpected news conference, Finance Minister Jim Flaherty said he was forced to act due to the "growing trend of corporate tax avoidance" -- an estimated $70-billion in new trusts coming to market this year alone.

"We were faced with a situation where Canada was moving to an income trust economy. Is that a good thing for Canada? No," he said.

"If corporations don't pay their share of taxes, this tax burden will shift on to the shoulders of hard-working individuals and families. This is simply not fair."

In order to mitigate the effect on retired investors, a number of provisions have been included; notably Garth Turner's suggestion of income-splitting for seniors.

Garth has been championing this cause for some time now, but was seemingly not taken seriously until he was thrown off the caucus-train and into an Indie seat.

My guess is that Finance Minister Flaherty has been ruminating on this corporate tax hemorrhage for some time, and Garth's idea seemed like a serendipitous answer to the problem of how to placate seniors.

But whatever happened, I am very pleased.

And if I asked Garth how he is feeling this morning, my guess is that he'd reply (to borrow a phrase from Scotty's bank buddy):

"I can't express my joy properly."

* * * *

More at Choice for Childcare - "Government to allow split pension income".
Musings of the Technical Bard - "Taxing Trusts"
Kitchener Conservative - "Question for CP - Can we blame income trust on the BT's?".
Political Staples - "Income splitting".

Update: CTV - Liberals lambaste Tories over income trusts. Well, that was predictable.

Very interesting read here by Linda Leatherdale - "Tories targeting trusts". The fundamental flaw with income trusts is exposed.


alias dictus said...

If retirees don't pay their share of taxes, the tax burden will shift on to the shoulders of hard-working individuals and families. Seniors don't need to be placated. Everyone should pony up their share based on ability to pay. Stop this egregious gravy train before it pulls out of the station.
BTW. Didn't the blogging tories take credit for making Goodale back down when he was musing about taxing income trusts.

Joanne (True Blue) said...

Didn't the blogging tories take credit for making Goodale back down when he was musing about taxing income trusts..

Mr. Goodale forgot to mix a bit of sugar with the medicine.

Swift said...

The income spliting will not be an advantage for many retired people because they are single. The percentage of single people goes up with age because of the death of one partner. A tax break doesn't make up for the 50% or greater loss of income that the trust investors are going to suffer.

It was estimated that the Telus and BCE conversions would generate a windfall tax of over one billion dollars. This tax gain has been wiped out today. Billions of dollars in potential capital gains taxes have also been been lost on the existing trusts.

For every billion dollars the federal government loses in potential capital gains tax revenue Canadian investors lose over 6.7 billion dollars. This is based on the highest tax rate. Smaller investors lose even more.

Even if you are not an investor in the stock market you have lost. Canada Pension Plan has lost a lot of money today, and more in the future. This money won't be there for your retirement.

There is not a billion dollars in the federal government budget that gives as much benefit to as many Canadians as the billion dollars not collected because of income trusts.

Joanne (True Blue) said...

Swift, good point about income splitting not helping single seniors.

I'm not all that up on capital gains, but you would think the government would have weighed the pros & cons of making such a drastic move.

Well, I do hope they do something for single seniors.

alias dictus said...

Swift... You're quite right about singles getting the shaft on income splitting. But that tax gain you referred to wouldn't have come out of thin air. It would come at the expense of somewhere else in the system, and would have to be paid for by other taxpayers. So to with capital gains and all preferential tax treatment. A pox on tax lawyers and their toadies in the Conservative party.

Steph said...

You’ve raised some interesting points on this Income Trust issue that I hadn’t really thought of when I first heard the news and groaned this morning. I suppose that you’re right that "The Income Trust gravy train had to end". I’m sure that the government is well aware that touching Income Trusts right now is a very politically risky move and therefore should be commended for doing something that is in the best overall interest of Canada in spite of how it may affect them politically.

Joe Calgary said...

Man... are there a lot of pissed off brokers on Bay Street today. I have never seen such a whine show.

What the fuck did these guys think was going to happen. You keep converting revenue positive corporations into revenue neutral trusts, and you think that at some point Revenue Canada isn't going to notice the bottom line.

Really, I think this is just the most obvious fucking decision a government could make.

I'm heavily invested in Canadian Oilsands Trust... I've been buying more all day on the cheap. I'm luvin this.

I completely disagree with your assessment of the situation Swift, the loss of the tax revenue is on top of the loss of market capital to corporations trying to compete with trusts.

Would you have all corporations shift to trusts? Thats what essentially will happen, and the Telus and BCE announcements confirm the mentality in the market.

Lets apply the correct word to the situation... greed.

We'll suffer from loss of foreign investment dollars, but we need to get more money out of the nation anyway's.

There is too much capital being invested directly back into the economy, and it's going to trigger serious inflationary issues sooner than later.

As well, the playing field for a Trust is hardly fair to a corporation... no, this had to happen, and remember that other than Canada, every other first world nation plugged this type of tax loop hole ages ago.

Swift said...

The income spliting will not help many couples either. My mother didn't work after her marriage so she didn't have a pension. The bulk of my parent's savings were in her name, and as a result their income was already balanced between the two of them. The benefit to those who planned properly for retirement is minimal.

As for it being in the best interest of Canada, is wiping out billions of dollars of savings for Canadians a good thing? Is reducing income for investors by over 50% a good thing? The government is losing much more in tax revenue because of foreign ownership than it is losing because of trusts. It is very easy for foreign companies to take out money from Canadian subsiduaries and pay little or no tax on the money.

With the fall of the market today the government has lost billions of dollars of tax revenues. This will take years to recover at a billion dollars a year.

But will they ever recover it? Before last year there were a growing number of American companies coming to Canada and converting to trusts. These companies paid no taxes to the Canadian Government before conversion anyway. They were very few Canadian owners of these companies, so the personal income taxes collected were negligable. After conversion they were at least 50% Canadian owned. Plus the foreign owners paid the 15% witholding tax. This resulted in an increase in taxes. Don't forget that foreign investors get no benefits for the taxes they pay. This results in a net gain for the government and all Canadians. The potential for increased revenue for the government in further conversions of this type is huge, far outstipping the tax leakage.

So is this a good deal for Canada? Billions lost in savings. bilions lost in income, and lower tax revenues now and potentially forever? I think not!

Joanne (True Blue) said...

Um, Joe Calgary, I would really appreciate it if you could find some other word to use instead of the f-word. I know that most blogs use far worse language, but I have a few tender-hearted readers. ;) Thanks.

Sara said...

the personal rate on lower income seniors was raised $1,000.

So let me get this straight, the Conservatives
helped the lower and middle class by taxing the giant corporations and people are still mad mainly the Liberals,,,

boy Joanne I wish you allowed swearing in here right now I have a few choice words for them lol

Joanne (True Blue) said...

boy Joanne I wish you allowed swearing in here right now I have a few choice words for them lol

Sara, try to be creative! lol! But if you must...


Sara said...

To anyone out there going against this,,, THEY CAN KISS MY FAT WHITE PIMPLY ASS....

Thanks Jo I feel better now lol.

Joanne (True Blue) said...

Ha-ha! Good venting, Sara.

liberal supporter said...

joe calgary: "I'm heavily invested in Canadian Oilsands Trust... I've been buying more all day on the cheap. I'm luvin this."

Why is that?

As i understand it (heard briefly on the radio), new trusts are subject to new distribution taxes, but old ones are not. So you're happy because the oilsands trust is cheap today though this announcement does not affect it? It's just cheap due to downdraft caused by Bell and Telus (who don't have their trusts set up and so would be subject to the new tax)?

I don't follow these enough so might not be understanding it...