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John McGee'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 have read your discussion paper and find I can't answer many of your questions, since I am neither an economist nor a representative of a provincial finance ministry.
However, it appears to me that the major portion of the supposed tax leakage is through tax exempt entities and foreign investors in FTEs.
Regarding tax exempt entities I assume you are referring to pension funds and mutual funds investing in FTEs.
In your discussion paper, there appears to be no consideration of the fact that all gains in pension funds and mutual funds will be taxed as ordinary income in the hands of seniors when they draw retirement or RIF income.
If you re-did the math on that basis, you would probably find that supposed tax leakage is much less, or perhaps negative. That is, Federal & Provincial tax take is simply deferred until retirement in the case of pension funds or death of the case of mutual funds or FTEs held in RSPs or RIFs.
So your analysis is not complete.
I think a major cornerstone of the Canadian retirement income tax regime is to encourage all to provide for their own income when they are no longer able to earn employment income. That, after all is the basis for tax deferral of RSP investments.
So, many senoirs and near seniors have invested in FTEs to provide adequate income for their retirement years. This all under a tax regime that was permitted by the Federal Government.
To change it now would place hardship on many seniors who worked hard all their lives to keep themselves in a lifestyle better that that available from CPP, OAS and GIS.
You have to re-look at this whole issue from the point of view of ordinary Canadian retirees who have been given scant attention in your discussion paper.
You have my permission to post these comments.