- News Release 2007-007

- Quebec - Newfoundland and Labrador - British Columbia - Prince Edward Island - Alberta - Nova Scotia - Saskatchewan - Manitoba - New Brunswick - Ontario

Archived - Letters of Support From Provincial Finance Ministers

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[TRANSLATION]

Gouvernement du Québec
Le ministre des Finances 

Québec, January 25, 2007

The Honourable James Flaherty
Minister of Finance
Finance Canada
L'Esplanade Laurier, East Tower, 21st floor
140 O'Connor Street
Ottawa, ON K1A 0G5

Dear colleague:

I am writing further to the Standing Committee on Finance decision to hold hearings shortly on the new tax on flow-through entities, commonly known as income trusts.

I want to reiterate the Quebec government's support for the flow-through entity taxation amendments announced on October 31, 2006 in your Tax Fairness Plan. The purpose of these amendments corresponds to our government's directions in setting up fair, neutral taxation that puts all businesses on a level playing field in obtaining access to financing and pursuing their growth objectives. In our opinion, it was clear that the advantages enjoyed by flow-through entities had gone on too long and that action was called for.

Already, in the fall of 2005, I contacted your predecessor in order to express the Quebec government's concerns about the increasing popularity of income trusts and their potential impact on the Canadian economy. As well, representatives of Quebec's Ministère des finances met with representatives of your Department to share our concerns. The main point, as we then indicated, is that the distortions in business decisions caused by inequitable taxation could not be justified, and that action was called for to correct the bias favouring the use of flow-through entities and allowing them to avoid corporate tax.

That being said, it is important that there be a transition period. You have clearly understood this concern, and the rules you propose in this regard are satisfactory.

That is why we unconditionally support the four-year transition period announced at present, that is, the application of the new rules governing existing flow-through entities starting in 2011. Extending the transition period could only increase governments' tax losses and perpetuate inequitable business tax treatment.

In this regard, although until now Quebec has largely been spared tax losses resulting from conversions of corporations to flow-through entities, the conversions announced by certain large corporations that are more prominent in Quebec would have increased these losses to $150 million annually, a loss that would have fallen on other Quebec taxpayers.

I wish to note once again that our support for the new rules governing flow-through entities resulted in the December 2006 announcement of the Quebec government's clear intention to harmonize Quebec tax legislation with the federal tax legislation rules to be enacted in this regard.

In closing, I again salute the courage you have shown in addressing this issue.

Yours truly,

[signed]

Michel Audet


Government of Newfoundland and Labrador
Department of Finance
Office of the Minister

January 26, 2007

The Honourable James Flaherty
Minister of Finance
Government of Canada
Ottawa, Canada
K1A 0G5

Dear Minister Flaherty:

I am writing to you to confirm the position of the Government of Newfoundland and Labrador in relation to the issue of the taxation of Income Trusts. My predecessor, the Honourable Loyola Sullivan, had previously written you, commending you on making the difficult but necessary decision to tax Income Trusts. As you recall, Minister Sullivan reiterated this province's support for the initiative in the Finance Ministers meeting in Vancouver.

Despite the strong negative reaction from the financial markets, we have not wavered in our views on taxing income trusts. We believe that the transitional provisions for existing Income Trusts are fair and reasonable. We have seen no need to adjust the transition period.

As you are aware, the energy sector in Newfoundland and Labrador has grown significantly over the last few years, and has potential to provide significant fiscal returns to the people of this province and to the Government of Canada. The potential erosion of this revenue source resulting from the proliferation of Income Trusts had been of grave concern prior to your announcement. We support your government's decision to apply the new rules to Energy Trusts.

I believe it is important for your government to stay the course on this issue, and I look forward to passage of legislation to implement your proposal.

Yours sincerely,

THOMAS W. MARSHALL, Q.C.

Minister of Finance and
President of Treasury Board

P.O. Box 8700, St. John's, NL, Canada A1B 4J6 t 709.729.3775 f 709.729.6791


January 26, 2007

169383

The Honourable James M. Flaherty, PC, MP
Minister of Finance
Government of Canada
House of Commons
Ottawa ON K1A 0G5

Dear Honourable Flaherty:

As Minister of Finance for the Province of British Columbia, I am writing in support of your proposed changes to the federal Income Tax Act that impact the tax treatment of income trusts.

I believe the measures you propose are necessary to address the policy and revenue impacts of converting corporations to income trusts. As you note in your October 31, 2006 announcement of the Tax Fairness Plan, there has been an increasing cost in terms of income tax revenues as a result of these conversions. In addition, the conversion of income trusts can result in shifts of tax revenues among provinces and shifts in tax burden among taxpayers. I believe that without action the continued conversions to income trusts would have led to a serious disruption of the tax system.

The measures you propose are appropriate and do provide fair transitional rules for existing income trusts and clear rules for new trusts.

In closing, I would like to thank you for taking the necessary steps to address this issue.

Sincerely,

Carole Taylor
Minister of Finance

pc: Brian Pallister, Chair, Standing Committee on Finance, MP Portage-Lisgar


Prince Edward Island
Office of the Provincial Treasurer

January 26, 2007

The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
L'Esplanade Laurier
140 O'Connor Street
Ottawa, ON K1A 0G5

Dear Minister Flaherty:

I am writing to express my support for your new Tax Fairness Plan as announced on October 31, 2006 and the transition guidance provided on December 15, 2006. Specifically, I would like to reaffirm that I strongly agree with the changes that were announced regarding the tax treatment of income trusts including the proposed four-year transition period for already existing trusts.

I have previously shared my concerns with you over the announcement by Bell Canada Enterprises last March to form a new telecommunications income trust which includes the telephone and internet land-line operations of Aliant Inc. Aliant was a major corporate taxpayer in Prince Edward Island and since the income trust structure allows for a complete elimination of taxable corporate profits, my province is losing a substantial amount of revenue from just this one conversion. And unlike the federal government which will recover some of that lost corporate tax revenue from increased personal income tax revenues, we will not be so fortunate. This is a result of the fact that a majority of the unit holders of the new income trust reside in provinces outside of our own.

Prior to your announcement October 31st, I was also rather concerned that this particular deal was only the beginning of a more serious regional income trust problem. If other major corporate taxpayers in this province and region decide to follow Aliant's lead, we could find ourselves facing a severe tax base decline. The federal actions taken in November of 2005 by the previous federal administration were inadequate to address the interprovincial tax consequences arising from income trusts. However, the new Tax Fairness Plan has addressed these concerns as well as providing substantial tax relief to seniors. I fear that to back-track or alter your income trust tax proposals as announced in October would be very damaging to our efforts to build a strong, self reliant corporate tax base in P.E.I. as well as in the Atlantic region in general.

Sincerely,

Mitch Murphy
Provincial Treasurer of Prince Edward Island


ALBERTA
MINISTER OF FINANCE

January 29, 2007

Honourable James Flaherty
Minister of Finance
Government of Canada
21st Floor, East Tower
L'Esplanade Laurier
140 O'Connor Street
Ottawa ON K1A 0G5

Dear Mr. Flaherty:

This is further to our conversation regarding revenue losses to Alberta from income trusts. As you know, there was a statement in Alberta's 2006 budget that Alberta's net revenue loss due to income trusts is about $400 million annually; we now believe the estimate is $450 million.

Sincerely,

Lyle Oberg, M.D.
Minister of Finance


NOVA SCOTIA
Finance
Office of the Minister

January 30, 2007

The Honourable James M. Flaherty
Minister of Finance
Government of Canada
L'Esplanade Laurier
140 O'Connor Street
Ottawa, ON K1A 0G5

Dear Minister Flaherty:

I am writing to confirm my support for your Government's policy and corresponding Bill regarding taxation treatment of Income Trusts. We believe that potential substantial conversion by Canadian corporations to these structures would be detrimental to the interests of Nova Scotians by reducing the tax revenues on which we depend in order to provide the services that they require.

We further support your intent to apply this new treatment to all forms of business including the energy sector. As you are aware, Nova Scotia expects continued development of our offshore resources and considers it important to our ongoing economic growth. The taxation policy that you plan to effect is consistent with these objectives, and the four year timeline presents ample opportunity for industry to adapt to these new provisions.

Please continue to pursue your intention to pass the requisite legislation.

Yours truly,

Michael G. Baker, Q.C.
Minister


Minister of Finance
Saskatchewan

January 30, 2007

The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
Government of Canada
L'Esplanade Laurier - East Tower
140 O'Connor Street
OTTAWA ON K1A 0G5

Dear Minister Flaherty:

I am writing to you regarding the federal government's recent change to the tax treatment of income trusts, announced on October 31, 2006.

The Government of Saskatchewan notes that these changes generally took effect at the beginning of the 2007 taxation year for trusts that become publicly-traded after October 26, 2006, but will only apply beginning with the 2011 taxation year for those income trusts that are already publicly traded.

With respect to the transition period for existing income trusts, we support the four year period given to income trusts that are already publicly traded, as it allows for the opportunity to restructure business practices where required.

Sincerely,

Andrew Thomson
Minister of Finance


Ms. Elizabeth B. Kingston
Clerk for The Standing Committee on Finance
House of Commons
673 - 180 Wellington Street
Ottawa ON K1A 0A6

Dear Ms. Kingston:

The Province of Manitoba supports the proposal of the Government of Canada to improve the neutrality of the tax system by adopting more equal treatment of corporations and flow-through entities such as income trusts. It is important for the efficient functioning of our economy that business decisions be based on commercial considerations, and not be driven by opportunities for tax arbitrage. Because of differences in tax treatment, corporations were increasingly under pressure to convert to income trusts solely as a result of tax considerations, even in instances where trusts were not otherwise the most appropriate form of organization.

We were also concerned that income earned by non-resident investors in income trusts was escaping taxation altogether. The proposed federal changes address this problem.

The four-year delay in adopting the new tax regime is both reasonable and fair. We note that pensioners, some of whom were invested in income trusts, have received an offset in the form of pension income splitting for tax purposes. Manitoba has confirmed that this measure will apply for purposes of provincial income tax as well. Manitoba was also one of the first provinces to announce that it would parallel the federal increase in the dividend tax credit on dividends distributed by corporations that are not eligible for the small business deduction. The higher dividend tax credits have also helped to create more equal treatment on income from corporations and flow-through entities.

Manitoba hopes that members of the Committee will be able to support the proposed changes.

Sincerely yours,

Greg Selinger

cc: The Honourable James Flaherty


New Brunswick

January 30, 2007

Honourable James Flaherty
Minister of Finance
Government of Canada
Ottawa, ON K1A 0G5

Dear Minister Flaherty:

Re: Federal Action on Income Trusts

This is to confirm the Province of New Brunswick's support of the recent action taken by the federal government respecting income trusts.

I appreciate your taking the time to discuss the difficult issues relating to this matter during the Finance Minister's meeting this past December. I trust that this confirmation of New Brunswick's position will be of assistance.

Sincerely,

Victor Boudreau

cc: Elizabeth Kingston, Clerk of the Finance Committee,
House of Commons Committees Directorate


Ontario
Ministry of Finance
Office of the Minister

Elizabeth Kingston
Clerk of the Finance Committee
House of Commons Committees Directorate
180 Wellington Street
Ottawa ON K1A 0A6

Dear Ms. Kingston:

Thank you very much for your invitation to appear before the Standing Committee on Finance on Tuesday, January 30, to discuss income trusts. I regret that I am unable to appear before the Committee.

I would like the Committee to know that, in principle, the Government of Ontario supports the federal government's efforts to ensure fair taxation through changes to the tax treatment of income trusts. We believe that these changes will protect federal and provincial revenue from significant tax leakage.

Ontario supports federal transitional rules as they appear to be flexible enough to allow trusts to proceed with reasonable growth, while ensuring there is no unfair advantage over the transition period. Ontario also supports the federal move to allow trusts to convert back to corporations without any tax consequences to investors on such conversions and welcomes the creation of a working group on the allocation of the new distribution tax. Consultation on federal tax changes that affect provinces and territories is essential.

Thank you once again for the invitation and for giving me the opportunity to share Ontario's position on income trusts with the Standing Committee.

Yours sincerely,

Greg Sorbara
Minister

c. The Honourable Jim Flaherty
Minister of Finance (Canada)

- News Release 2007-007