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John DiMarco'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:
I am speaking not for any organization, but for myself alone, as an investor and a Canadian taxpayer. I prefer to be contacted by email, in English. I would be happy to answer any questions about my submission, or provide further information.
My submission is as follows:
Much of the concern about loss of tax revenue from flow-through entities seems overblown to me: what seems to be happening is that tax revenues are being underreported because it is much more difficult to count all the applicable revenues from the taxation of many, diverse unitholders than a few corporate entities; some revenue will invariably be missed, and so the tax revenue will be underreported, possibly quite significantly.
However, there remains at least fundamental tax problem that is more than an issue of measurement: flow-through entities are distorting the effect of corporate tax deductions that are intended to spur corporate investment, because the flow-through structure permits those deductions to be passed on to unitholders who cannot make the specific corporate investments that the deductions are intended to encourage. I suggest this problem be addressed not by broadly taxing the flow-through concept itself, but by examining the various allowable corporate deductions in the context of flow-through entities, to ensure that the desired effects of each deduction are being achieved. This lends itself to an incremental deduction-by-deduction approach to flow-through tax reform, which will in itself be far less disruptive than a new broad-based tax on these entities.