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John Rilett'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:
As you will see this submission is made by an unsophisticated individual with out formal education or work experience with financial matters, but more than a casual interest in any changes to FTE's.
It seems to me the concern over FTE's is more about the possible loss of tax revenues to the Federal and Provincial Governments. I doubt this issue would have ever come up if it weren't for this possibility.
I suspect the perceived tax advantage to income trusts does influence how business are organized. Any organization that did not try optimize their structure would be remiss to their unit holders. What we are really taking about here is a shift of the tax burden away from the corporate entity to unit holders.
I do not think that income trusts have a significant impact on Government revenues. I've seen equally credible estimates on both sides of the issue. If it weren't for non-taxable entities holding business trust, I doubt if there would be any debate at all. Although non-taxable pension plans, RRSP's and RIF's do not pay tax on income earned, there is tax paid by the beneficiaries when the monies are distributed. There is no preferential tax rates on distributions made by pension plans or RRSP's. This revenue has not been lost but delayed with premium. I have not seen any estimates on the effect on long term tax revenues.
I suspect that FTE's have little effect on investment decisions businesses make. If there is a good business reason for make an investment it will be made regardless of the form the business takes. In general, FTE's have been good for the economy as evidenced but the phenomenal growth the income trust sector over the past 10 years. Much of this success is related the tax efficiencies leading to more income flowing through to the unit holders. The unit holders then have more money to reinvest or spend, a win win deal if you ask me.
Overall, there are public policy concerns regarding income trusts. With the baby-boomers reaching retirement age and the declining work force to support retirees there is a need for tax efficient income. It is incumbent on the Government to formulate public policy to provide for it's citizens retirement.
Hilton Beach, Ontario