Evidence of meeting #59 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was trust.
A recording is available from Parliament.
1:15 p.m.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you.
Just quickly, Mr. Kesteven, looking at chart B, do you agree with any of the numbers there? I'm just looking at one number in particular: the capital gains tax. They're estimating it to be $100 million, but if Bell and TELUS converted, you were saying the numbers were going to be much higher. Have you had a chance to look at these?
1:15 p.m.
President, Canadian Association of Income Funds
We haven't had a chance, obviously, to review these numbers because we got them, like everybody else, just a short time ago, but clearly there are some huge inconsistencies in what we're seeing here. One of the points that was made earlier was that part of the error in Finance's way of evaluating this arose from using average tax rates for corporations or statutory tax rates for corporations based on EBITDA numbers. And, I'm sorry, but that's not necessarily a reflection of reality. Corporations in this country, contrary to Minister Flaherty's comment, do not pay billions of dollars in income taxes. They have deductions that allow them to reduce their effective cash tax rates, in many cases, to under 10%. And that's what the number should be benchmarked at in terms of the data.
The other good point that's been raised is that there are only two entities in this country, that I'm aware of, that are tax exempt: municipal crown corporations and charitable organizations. Everything else is either taxable or tax deferred, and it's important that tax deferred not be treated as tax exempt. That's another major error in analysis.
1:15 p.m.
Conservative
1:15 p.m.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chairman.
It's rather ironic, but after the Conservatives' announcement, I saw the same incredulous expression on the faces of investors in my riding as I had seen in 1994 when the Liberal government announced its plans to continue restricting access to employment insurance. Two groups at opposite ends of the income spectrum reacted in exactly the same way.
Let's assume that the transition period is extended from four years to ten years. Indeed the total amount of federal government tax revenue lost every year, namely $500 million, could be multiplied by six. However, in reality, isn't that a rather simplistic way of looking at things? The losses associated with extending the transition period from four years to ten years could be higher, or lower, than $500 million per year. Agreed?
I put the question out there for anyone who might care to venture an answer.
1:15 p.m.
Royalty and Income Trust Analyst, BMO Capital Markets
Again, this is the first time we've seen these numbers. I would have to look through the numbers, but I don't believe the studies we've done show any tax leakage, so I don't believe we would see a compounding. You also have to take into account the present value of the dollars today. But according to the numbers we've seen and the numbers we've run looking at true, real, practical taxes paid by corporations versus the trusts, there is not a leakage issue here. We have not come across that in any of our studies. We've looked at 126 business trusts, and we compared the taxes paid in the prior one, two, and three years before conversion, and then looked at the taxes paid, through the distributions, by the unitholders in the first year following conversion, and that number was almost two times the difference.
You can massage the assumptions, but the reality is that all of these are based on theoretical studies looking at, as George mentioned, statutory tax rates. Corporations have 600 pages of tax code on deductions. I don't believe it was ever predicted that BCE would restructure their subsidiaries and accelerate R and D credits. Was that factored into these assumptions? Corporations have many avenues available to them that ordinary common unitholders do not have. Using that as the basis for our assumptions, we have not determined, through our studies, that there is any leakage
1:20 p.m.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Would anyone else care to comment?
Ms. Urquhart?
1:20 p.m.
Independent Consulting Analyst, As an Individual
I'd like to make three points with respect to that question.
1:20 p.m.
Conservative
1:20 p.m.
Independent Consulting Analyst, As an Individual
Okay.
You can't give credit for capital gains that are forced by conversions. You can't make a policy decision for the perpetual future on the basis of the realization of accrued gains that are from the past. When the full conversion occurs, we're not going to have those benefits.
The second point is there are permanent government revenue losses in the tax-deferred plans when you do a proper analysis.
And, time permitting, I'll deal with anybody who wants to see my methodology.
1:20 p.m.
Conservative
The Chair Conservative Brian Pallister
We'll conclude on that point.
Mr. Dykstra, your time begins now.
1:20 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Thank you.
My first question is for both Mr. Kesteven and Mr. Fullard, and it is very straightforward.
We know that your organizations have had resignations both from the board of directors and from the membership. Could you let us know who those folks are and why they made the decision to abandon your organizations?
1:20 p.m.
President, Canadian Association of Income Funds
You're referring to the CAIF board of executives? Our board is actually made up of 36 volunteers from the trusts. As far as I know, we haven't had any resignations recently from the board. We did have one resignation, which was the gentleman who is general counsel for Yellow Pages. He simply didn't have the time to deal with the issues anymore, based on how we've had to ramp up, quite frankly, since October 31. That's the only resignation.
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
What is your question?
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
Resignations?
1:20 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Resignations from your board of directors, your membership.
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
From the board of directors, no, there have not been.
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
No, that's correct.
1:20 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
All right, fine. Thank you.
The second question is to Mr. Kesteven.
These are some of comments that I read, quotes of yours, that were about the minister: “He's not going to budge. He's made that abundantly clear. I won't be wasting my limited time with him.” Those were your comments.
If that's the case, why have you indicated to your organization that it's worth spending millions of dollars trying to change the mind of the government?
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
Where are you getting that number from?
1:20 p.m.
President and Chief Executive Officer, Canadian Association of Income Trust Investors
You said “millions of dollars”. We spent $147,000 to date, which is on average 14.7¢ for every one of the one million investors we represent, about the price of a third of a stamp. So I think they're getting pretty good advocacy on this issue.