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Robin Rugg 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 wish to add to the consultation that you are conducting on the question of Taxation and other matters concerning Income Trusts and Limited Partnerships.

I give you permission to publish my comments, should you so wish.

My name is: Robin Rugg

Les Cedres, QC

Occupation: Retired Chartered Accountant, managing our investment portfolio.

While I find the analysis comprehensive, I think it would helpful to have an age breakdown for the 39% of Income Trust holders.

I am tempted to make the assumption that a large majority would be retired people. Most other individuals have a substantial part of their investments in RRSPs and other Tax Deferred vehicles. This means that a large number of Retired people are trying to maximize their revenues and while not amongst the least favored group, they are nevertheless far from being well off. These would include people who do not have a defined benefit from their former employer(s), and over the period of their earning life, put money aside that they were not able to include in an RRSP. Their hard earned capital comes from after tax income. I submit that it would hard pressed Canadian pensioners who would be severely penalized in the event of a change in the taxation of these Trusts.

The so called "loss" of tax revenue from this group is insignificant (more or less 5%), thus fairly accurately underlining the amount of double taxation when people have to pay taxes, which are greater than the credit, on their dividends.

It is not clear from your analysis as to what you include in Revenue from Income Trusts. Particularly in the case of Royalty and Real Estate Trusts, a not inconsiderable part of the Distribution is not taxable, pass through of Depletion or Depreciation, or is a return of capital. While "Returns of Capital" are not immediately taxable, they have to be considered as a reduction of the cost of the investment, and thus would increase the amount that will be paid for Capital Gains tax in the future. Depletion and Depreciation are large deductions in those Trusts, and in fully taxable corporations are fully deductible. I would suggest that bundling Real Estate and Royalty Trusts into the overall business group distorts the comparison of taxes payable between Corporations and Income Trusts.

The tables and presentation show that no tax is payable on 39% of the Distributions. This is a distortion of the reality. In most cases these distributions are going to Pension Plans and RRSPs. The taxes are deferred not waived. While this effects the revenue to the treasury, over the long term the total tax paid will be more or less the same as if the distributions were made directly to Individuals. (There might be a small reduction, as Pensioners and recipients from the proceeds of an RRSP may be in a lower tax bracket).

On the question of overall investment strategy, too many mature companies accumulate more surplus cash than they can use for logical expansion, whether that be by normal growth or acquisition. Too often these funds are used to influence the market price for the shares of the company.( Share buy backs). When a company is mature, then these higher earnings should be distributed to the shareholders. These are the people who should be making the investment decisions. They will be looking at the whole world market, rather than the limited one that company managers would consider. It is possible that some individual investors do not have the knowledge to make such decisions; they would be most likely those that do not make such decisions in the first place, by making their original investments in Mutual Funds. The Income Trust strategy is the best one for the country to pursue when it comes to handling the earnings of mature companies.

Thank you for this opportunity to participate in this consultation.


Robin Rugg
Les Cedres, QC