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Bruce Chase's Submission in Response to Finance Canada's Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships) consultation:
Response to Finance Consultation on "Tax and Other Issues related to Publicly Listed Flow-Through Entities."
As an INVESTOR I wish to respond to the above Consultation request from the Department of Finance. I have been investing in Canadian Mutual funds, stocks and bonds for over the past 15 years. I have suffered through the market meltdowns and the current low interest rate environment. Currently my primary investments are focused on Income Trusts. These equities flow through to me much needed income to assist me in building a sufficient sized nest egg for my retirement years. I am currently 5 years away from retirement and need substantial assistance to augment my pension if my wife and I are to live out our retirement years in dignity and without assistance from the public purse.
First I would like to address the ownership issues. As a unit holder of a trust, I am an owner, and I share in the proceeds of the economic activity of the Trust. Unlike a shareholder in a publicly traded company, the trust structure requires management to manage the business efficiently and flow through to me the cash generated from the business. In the traditional corporate model, management is less likely to flow through to the shareholders the bulk of the cash generated from profits, as they will hold back funds as "retained earnings" for some grandiose ideas or schemes, as if to say that the owners of the business are not worthy enough nor intelligent enough to use these funds efficiently. I believe that the traditional corporate model has more to do with lucrative stock options and the enrichment of management than the paying to the owners of the company all the profits.
Taxation of the income flowing to me will occur when I take the money out of my RSP. The government will see increased tax flows as I spend this money into the Canadian economy. I believe that I am the best person to determine when and where I should spend this money, NOT the government of Canada. Further, the Government of Canada continually extracts in taxes, billions of dollars more than is needed to fund it's activities. This is INEFFICIENT, as it removes money from the economy and places it in the hands of bureaucrats whose raison d'etre is to spend tax dollars. Again I submit that the money is most efficiently used by me, the investor, the one who took the risk by investing after tax dollars into the Canadian economy in order to EARN a return that will assist me in my retirement years. No government is going to help me out unless I become destitute.
As to the question regarding the allocation of capital, I believe that the Canadian economy would be better served by LESS government taxation and more people making day to day investment and spending decisions. To concentrate the wealth of corporate profits into the hands of management whose main concerns are to increase share price in the short term to justify increased stock options to them is NOT an efficient use of the income. Better to let thousands of investors recycle the proceeds than to let Corporate Canada waste them on hair brained schemes and dreams. This would reward the good companies and weed out the bad companies, those who continually ask for government hand outs to assist them in doing business. They have been living off of these handouts for years and do not have a competitive culture in their boardrooms.
Taxation is EVIL, and although some of it may be necessary to fund necessary governmental activities, by the mere fact that the governments of this country have been running astronomical surpluses these past number of years means that we as Canadians are overtaxed. How did they do it. Well they cut back on services, downloaded responsibility to lower levels of government without providing the needed revenues to fund these responsibilities. This meant that lower levels of government had to either cut services, or raise taxes. At the end of the day there is only ONE taxpayer and he/she pays all the taxes. This taxpayer spends the income generated by Income trusts. To extend the double taxation currently impacting corporate dividends will impact the taxpayer and reduce the income available for efficient recycling into the Canadian economy.
Tax exempt investors (Pension funds) will use the proceeds from flow through entities to help fund their liabilities. Ultimately these funds will find their way back to the Taxpayer and they will be taxed not only as income but also when spent. I see no reason to worry about Pension funds accumulation of Income trusts in their investment portfolios.
Finally, there are policy concerns regarding Flow Through entities. The governments of this country have encouraged flow through entities. Investors have embraced flow through entities. Billions of investment dollars are tied up in flow through entities. To have the government of Canada change the rules of the game now and impose taxation on these entities even though the same government is awash in surpluses is unfair. The minister talks about fairness in the investment community, but the bulk of the investors in flow through entities are not millionaire entrepreneurs. They are middle income Canadians trying to scratch out a satisfactory retirement on meager incomes. Many would end up suffering if they did not have the benefit of Flow -Through Entities.
I respectfully submit that the Government of Canada should leave flow -through entities alone and let the Investors of this country decide where the money should be spent. The last thing the Government of Canada needs is more tax revenue.
Bruce Chase - Taxpayer and Investor.