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Stephen Cummings' Submission in Response to Finance Canada's Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships) consultation:

Comments on Income Trusts

You have my permission to post the following comments on your web site.

Stephen Cummings
London Ontario

1. Does the tax advantage of income trusts relative to public corporations have a significant impact on how businesses are organized in Canada?

Yes. In my opinion companies making distributions through an Income Trust are generally far more effective in making smart, effective business decisions about mergers, acquisitions, and operational efficiencies, and are generally more disciplined than companies awash in capital. I base this opinion on the performance of Income Trusts in my portfolio, which have consistently increased distributions with far greater frequency than companies that provide only dividends. I have also observed that Income Trusts have had the faith of the investing public for raising new capital until Minister Goodale attacked the Income Trust sector. In effect, the Liberal Government, through its Finance Minister, has crippled the most efficiently organized business group in Canada.

2. Do Income Trusts have a significant impact on government tax revenues?

No. In my opinion, the Liberal Government is only interested in short-term cash flow accounting. The Income Trust structure provides fully for long-term government revenues. There is no question, nor has there ever been a question that government would claim its due revenue from Canadian citizens. The primary beneficiaries of Income Trusts are retired people and young families who have invested in Income Trusts through RESP programs. In both cases the benefits to individuals are spread over many years, and the consequent flow to government tax revenue is spread over many years. The claim that Income Trust beneficiaries do not carry their weight in generating government tax revenue is both false and cynical. In this regard, Minister Goodale's attack on the careful long-term planning of hundreds of thousands of Canadians in order to meet short-term budget goals of the current Liberal Government is immoral. And, it is unacceptable.

3. Do Income Trusts have an impact on business investment decisions and the allocation of capital in Canada? Is this impact on the economy positive or negative?

Yes. The impact is positive. I believe that the stock market in general and the businesses that comprise the stock market in particular are self-regulating in a manner that reveals, rewards and/or punishes business investment decisions far more effectively than government intervention and regulation. I am not suggesting that the market place be without law. Law should support an open market and provide protection and recourse from criminals. However, law should not be used to further the political goals of those currently empowered to make law. In the case of Income Trusts, law should not be used to make criminals of, or to steal from, the hundreds of thousands of Canadians who have invested in Income Trusts in good faith based on law previously supported by the current Liberal Government.

4. What impact do tax-exempt investors, such as pension plans, have on government revenues and economic efficiency in relation to Income Trusts?

Pension plans that hold Income Trusts provide a leveling of tax revenue over many years. The flow-through to taxable individuals from pension-held funds occurs over a long period of time. Pension plans thus provide stability to government tax revenues. In my opinion, this feature of Income Trusts should be celebrated and protected in the sense that it guarantees tax revenue to government in a manner that permits long-term planning for social spending by government. Destroying the long-term stability of tax revenue to government to serve short-term political goals of a current government is a disservice to Canadians and to the commitment of all Canadians to be Canadians. In case you missed the last point, think of Goodale's impact on Quebec investors.

5. Overall, are there public policy concerns about Income Trusts and how the tax system influences their existence? If so, what actions should be considered to address these concerns?

Yes. There are public policy concerns arising from the Income Trust issue. The immediate concern is whether or not the current Liberal Government can support the good will, best intentions and faith of the Canadian investing public. In my opinion the most effective action for Minister Goodale and the Liberal Government is to back off, to absent itself from the market place as quickly as possible, and to let the good people of Canada who have been caught up in this windstorm resume their lives without further punishment.