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George E. Creek'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:
Submission to Department of Finance, Government of Canada
"Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships"
The announcement by the Minister of Finance that the tax treatment of Income Trusts has been a disaster for hundreds of thousands of Canadian taxpayers as they watched their investment capital whither away under the speculation created by the Ministers announcement. It is estimated that the Income Trust sector has lost over $20 billion of capital value in the weeks following his announcement.
The Federal Government is speculating that up to $300 million of annual tax revenue is being lost because many corporations have converted to income trusts to give greater benefit to their investors. The comments by the minister have been misleading and do not take into account the tax revenues being received by the government through the taxation of dividends from trusts in the hands of individuals at their various tax rates.
In addition to direct income tax being applied each year, the after tax amounts received by investors is further taxed by way of the various consumption taxes applicable to goods and services being purchased by the individual with these dividends. The effect of the spending of the after tax investment income is to provide tax income for local, provincial and the federal government on the wages earned in the job creation process and consumption of goods and services.
In effect, every dollar received in dividend income has a beneficial ripple effect on local and national economies. It is not hoarded or spirited out of the country to be spent elsewhere.
If Income Trusts are taxed any differently than as they are now, the effect would be to seriously erode investment capital, investor confidence and substantially affect the savings, pensions and quality of life of a vast number of tax paying Canadians.
If the Government of Canada elects to change the tax on dividends from Income Trusts, then it should eliminate Capital Gains tax on those units that are wholly Canadian in assets and operations.
On a personal level, my wife and I are retired without any private pension plan as we were self-employed and the only investment / savings vehicle available to us were RRSP's.
We currently are living on CPP and income from a small investment account, generated with after-tax dollars, that relies heavily on the higher yields afforded by the trusts. Conventional investment instruments are simply too low yielding to provide adequate income to supplement the CPP/RRSP amounts. A change in the taxation method on Income Trusts would have a detrimental effect on our standard of living and we would have to consider resorting to selling off assets in order to maintain a reasonable standard of living, especially under the current tax regime we are currently burdened with.
George E. Creek
Nanaimo, British Columbia