Date: Sep. 09, 2007
Rhona Ambrose [email protected]
Ken Epp [email protected]
Peter Goldring [email protected]
Laurie Hawn [email protected]
Rahim Jaffer [email protected]
James Rajotte [email protected]
John Williams [email protected]
Dear Laurie Hawn and Edmonton-area MPs:
This is to acknowledge receipt of your Email dated Aug. 23, 2007 in response to my Email of Jan. 16, 2007 concerning income trusts (appended below). Unfortunately, rather than answering the five specific points that I raise, you choose to parrot the standardized response justifying "our Government's decision to change the taxation structure for income trusts in 2011". (What ever happened to the pronouncements of the Reform Party/Canadian Alliance of yesteryear, as well as your own pledge, to represent constituent concerns to Ottawa, rather than rationalize unpalatable Ottawa decrees to your constituents?)
My critical comments are inserted in square brackets and in the color fuchsia throughout the text of your message reproduced below. Here, I would like to re-emphasize my conclusion that the income trust format is superior to the equity corporation format. Rather than impose a 31.5% tax on income trust distributions, Canadians would be better served if equity corporations were allowed to distribute a portion of their cash flow to shareholders to be taxed at individual rates of up to 39%, with the remainder of their earnings taxed at the de facto corporate rates averaging less than 10%.
I do not understand why you and the Government present this income trust debacle as a minor problem affecting only pensioners and retirees of today; whereas it has huge ramifications for the future wellbeing of all Canadians.
In his detailed study on income trusts, Gordon Tait of BMO Nesbitt Burns states: "Without an income trust market, this type of investment opportunity would be lost to all but institutions and wealthy investors in Canada and to private equity investors abroad." In other words, by killing income trusts you beggar ordinary Canadian investors in favour of the "moneyed elites" in Canada and abroad. This will only accelerate the trend in Canada and many parts of the world, where the rich get richer and the poor get poorer.
Why should not young Canadians be able to invest in income trusts paying reasonable rates of return in their RRSPs with an expectation that they would be able to retire 40 years later in reasonable comfort, rather than relying on Government handouts? The argument that RRSP investments represent a tax loss to the Government is false, since calculations indicate that tax-deferred RRSPs gain the government at least 1.7 times on a present value basis. Even today the withdrawals from RRSPs exceed the contributions by some $15 billion.
In concluding, I thank you for your response and for the invitation to contact you again on this issue. I expect that I will be doing so in due course.
Respectfully yours
Will Zuzak, Ph.D., P.Eng. (retired); 2007.09.09
********** Hawn 2007.08.23 Zuzak **********
From: Hawn, Laurie - M.P. [email protected]
Date: Thursday, August 23, 2007 3:35 PM
To: [email protected] [email protected]
Subject: Income trust correspondence
Ottawa
23 August, 2007
Dear Dr. Zuzak,
Thank you for your letter regarding our Government's decision [W.Z. in which you did not participate] to change the taxation structure for income trusts in 2011. As your representative in the House of Commons, I greatly appreciate hearing your views, whether supportive or critical of Government policy. By sending me your thoughts, you provide me with an opportunity to further understand the impacts of decisions made at the Federal level as well as the success our Government has had in explaining why they were made.
I would like to begin by expressing my sincere regret that Canadians experienced losses as a result of the Government's decision regarding income trusts. My colleagues and I, including the Prime Minister and Minister of Finance, are well aware of the effects of this decision and do not take them lightly. Our Government made this decision after a great deal of consideration and only once all other options had been exhausted.
[W.Z. This is simply not true. There were, are and will be many other options. It is my understanding that the decision was made at the insistence of the "moneyed elite" whose sinecured position was threatened by the popularity of income trusts, which financially empower the ordinary Canadian investor.]
As you may know, prior to the last election, the Conservative Party opposed the previous Government's proposal to tax income trusts as well as the unprofessional manner in which tax change deliberations were handled. Our party proposed, instead of taxing income trusts, to lower the tax on dividends in an effort to level the playing field between income trusts and corporations, and thus slow the conversion to trusts.
[W.Z. You may have lowered the tax on dividends, but my rate of federal income tax for 2006 increased to 15.25% from 15.00% in the previous year.]
We fulfilled this promise in our first budget in March 2006. This action, however, did not slow down the conversion to trusts. In fact, Canada's largest corporations began moving towards -- or contemplating a move into -- a trust structure at an increasing rate.
[W.Z. Perhaps true, and, in my opinion, they should have been allowed and even encouraged to do so -- subject to appropriate well-defined conditions. Prominent economists even recommended that BCE become an income trust. The recent buyout of BCE will presumably result in zero corporate taxes being paid; whereas as an income trust it would have generated millions in tax dollars.]
This significant move towards income trusts raised two primary concerns: First, there would be decreased general tax revenue due to the fact that converted corporations would no longer be paying federal or provincial corporate tax; and, second, that many of these corporations would be converting simply to avoid taxation.
[W.Z. This is dishonest sophistry! It has been demonstrated repeatedly that the income trust format increases tax revenue -- both in practice and in concept. The modest federal and provincial corporate taxes would be replaced by the higher individual taxes of trust holders -- to the benefit of all concerned.]
By allowing corporations to convert to a trust format simply to avoid tax, our Government would have allowed the existence of two parallel tax structures. This approach would neither be fair nor responsible. The difficult decision to impose a distribution tax on trusts was, therefore, motivated by a desire to restore fairness in the Canadian equity markets.
[W.Z. Sophistry, once again. Conversion to a trust format enhances the efficient utilization of financial resources. It is not done "simply to avoid tax". The existing tax legislation is so complicated and full of loopholes that one should speak of "multiple" rather than two parallel tax structures.]
I recognize the premise that conversion to income trusts leads to a decrease in general tax revenue (or tax leakage as it is commonly called) has been challenged by many people. The Finance Minister and his officials, however, have assured me that there is a significant loss of revenue [W.Z. Not true], and that there would have been an increasing loss of general tax revenue as a result of more businesses converting to the trust structure [W.Z. Not true]. They further argue that this would have compelled the government to raise individual income taxes in order to make up this lost revenue. [W.Z. Sophistry. The income taxes of the trust holders would, of course, increase as their income increased. The individual income tax of other Canadians could thus be decreased, if the Government so chose.] Our Government needed to preserve tax fairness between the amount of tax paid by corporations and the amount of tax paid by individuals.
[W.Z. One should not even attempt to compare corporate taxes with individual income taxes. The Government has repeatedly argued that it intends to reduce corporate taxes claiming that this would make Canada more competitive in the global economy; encourage foreign investment in Canada; discourage corporations moving their headquarters into offshore tax havens; etc. Corporations are often able to wheedle, blackmail or bribe federal, provincial and/or municipal governments into making financial concessions. It is absurd to speak of tax fairness in this context.]
This sentiment is shared by most provincial governments, including Alberta's, which had requested the federal government take action due to the loss of provincial corporate taxes from trust conversions. [W.Z. As pointed out above, modest provincial corporate taxes are more than offset by the taxes paid by trust owners. I was unaware that the province of Alberta had lobbied the federal government to impose the 31.5% trust tax on Oct. 31, 2006. Please supply me with copies of any and all correspondence between the federal and Alberta governments in this matter. Furthermore, it is my understanding that Alberta Finance Minister Lyle Oberg has been unable to document any such tax losses.]
Our government was aware of the effects of our decision on the markets and on people's investments. [W.Z. Thus, it should be condemned for bowing to the demands of the "moneyed elites".] In an effort to mitigate some of these effects, we announced several additional measures to reduce the tax burden on Canadians, including:
There was no way to implement a decision to stop the conversion of large corporations into trusts [W.Z. It is likely that such conversions would have been beneficial to the Canadian economy.] without having some impact on individual investors. By publicly attempting to inform investors of the deliberations over an income trust distribution tax, this Government would likely have caused great uncertainty in the markets and would thus have caused even greater volatility in trust stocks. [W.Z. Is this an attempt to justify unwarranted government secrecy?] Moreover, in making this decision, our Government ensured that no information regarding changes to the income trusts taxation structure leaked out privately to certain individuals prior to the public announcement.
I am aware of the great frustration felt by many trust investors -- a situation I truly regret. Unfortunately, this was a decision that had to be made and which was made due to considerations of fairness and long-term fiscal responsibility. I note with pride that this Government has made decisions guided not by political gain, but by extensive deliberation over what is best for Canada. [W.Z. Increasing impoverishment of Canada's middle class is not in the best interests of Canadian society.]
I assure you that you will always find me to be attentive should you have further concerns on this matter or ideas for future budget measures to minimize the effects of the distribution tax that will be imposed on trusts in 2011. [W.Z. By that time, I expect you will have conceded that the income trust format is superior to the equity corporation format. In the meantime, it may be wise for the Government to announce on Oct. 31, 2007, that any such distribution tax would be reimbursed to income trusts held in RRSPs.]
Once again, thank you for contacting me and please do not hesitate to do so again in the future.
Sincerely,
Laurie Hawn, MP
Edmonton Centre