- Consulting with Canadians
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Derek Speirs' Submission in Response to Finance Canada's Tax and Other Issues Related to Publicly Listed
Flow-Through Entities (Income Trusts and Limited Partnerships)
consultation:
Minster of Finance Canada
I understand your concern about corporations converting
themselves into income trusts with the consequent tax drainage and capital
reduction. My solution is to level the combined corporate/individual tax
rates so there is negligible long term tax advantages to the income
trust over the corporation for Canadians and yet not do harm to the
economy in the process.
There is permanent tax leakage on income trust
income paid to foreigners.
Canadian pension funds will eventually pay taxable
pensions. Virtually all Canadians will have to pay tax on
their RRSP/RRIF withdrawals. Of course, tax paying individual and
corporate holders already pay tax on income trust income. The net taxes
lost -- versus taxing dividends from tax paying corporations --
are mainly duplicative and should be eliminated anyway. The non
duplicative long term exception is for the portion of business
income received directly by foreigners and not taxed via the
combination of corporate taxes and dividend withholding tax.
What is the simplest way of taxing foreign holders? A flat
percentage withdrawal at source at the equivalent of a full corporate
rate wherever the holders reside outside Canada. There should
be no special 10% or 15% withholding tax treaty rates as with dividends or
interest income earned by some foreigners.
If the federal government taxes income trust income
received by Canadians -- pension funds(already under funded),
RRSP/RRIF's, individuals and corporations -- a major income trust market
crash will cause a significant consequent adverse impact on virtually the
entire Canadian population. Taxing only the foreign holders will only be a
minor income trust market price dampener which Canadians and their economy
can likely survive without major adverse ramifications.
To help put income trusts and corporations on a level
taxation basis:
a) establish a withholding tax
on income trust cash distributions to foreigners to least the top
corporate level and, preferably, the top individual bracket level;
b) increase the dividend tax credit to
Canadians so that the corporate and Canadian individual's combined
tax rate
is proportionately no more than what top tax
bracket individuals would pay on trust income.
If you wish to discuss this more, I would be pleased to do
so.
Derek Speirs
Montréal Québec
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