Good afternoon.
Thank you very much, Mr. Chairman and members of this committee, for giving me this opportunity to speak to you today on behalf of the Canadian Association of Income Funds.
The Minister of Finance's stated intention last October 31, with the introduction of the so-called tax fairness plan, was to level the playing field, stop future conversions to income trusts, and stop tax leakage, no matter how small. What the government has done does not amount to tax fairness, but rather the wholesale destruction of a valuable structure in the Canadian economy.
To date, the unintended negative consequences of this move have been the following:
First, to give a boost to the U.S. growth of master limited partnerships, MLPs--the U.S. equivalent of Canadian income trusts--by eliminating any competition.
Second, to destroy billions of dollars of investor value. Many of these investors invested based on a promise made and subsequently broken by Prime Minister Harper.
Third, to tilt the playing field in favour of private equity, foreign equity, and pension funds, none of which pay taxes to governments, federal or provincial.
Fourth, to make it difficult for Canadian trusts, especially resource trusts, to access capital. This makes them prime targets for takeover.
Fifth, to facilitate the takeover of close to 15 trusts in the last six months, with more than 20 announcing that they are currently on the block at fire sale prices.
Mr. Chairman, as Premier Calvert said earlier today, it is not tax fairness to break a promise made to millions of Canadian investors. It is also not tax fairness to impose a 31.5% tax when corporations effectively pay only 5% to 10%.
The playing field has not been levelled when the income trust sector has been severely disadvantaged, compared to the situation of corporations, by the elimination of non-resident investors and through the double-taxing of pension funds and RRSP holders. It is not tax fairness when Canadian investors have been disadvantaged and cut off from an investment vehicle that provides them with cashflow needed for retirement.
As far as the issue of tax leakage is concerned, it is our contention that federal and provincial tax revenues will not be increased in any way under this bill. Many governments will actually experience reduced revenues in the end.
Permit me to highlight for you the federal government's own documents of October 31, in which it forecasted zero tax revenue through 2011 from this tax. Copies of this have been provided to the clerk. It makes all the more curious the fact that the finance department has promised a new joint committee with the provinces to share in the revenue stream when none is expected over the four-year transition, and little if any is expected into the new regime as the sector is bought out or converts to corporate status.
With respect to Bill C-52 itself, we urge this committee to address clear gaps in the current drafting:
First, how will income trust be treated in legislative terms during the transition period? Currently these rules appear only in guidelines that are, in essence, a news release that can be changed at the whim of the government.
Second, there needs to be a legislative framework in Bill C-52 to facilitate conversion to corporate status on a tax-deferred basis, similar to the existing subsection 85(1) of the Income Tax Act, as well as the ability to eliminate the remaining trust vehicle in a tax-efficient manner.
We respectfully submit that the finance committee follow its own advice to the government of earlier this year in its report on income trusts by producing a separate piece of legislation that is comprehensive and that includes the guidelines and conversion rules, and is not so broad as to have application to partnerships that are not listed on the public exchange. Only then would all parliamentarians and Canadians have a clear opportunity to see this issue on its own merits, and properly address the income trust issues in this bill.
We continue to be committed to working consultatively and collaboratively with all levels of government to achieve a tax system that is fair for all.
Thank you.