Thank you very much.
My name is Debbie Pearl-Weinberg. I'm general tax counsel at CIBC. I'm also chair of the taxation working group at the Investment Funds Institute of Canada, commonly known as IFIC. I'm here today representing IFIC. My comments today don't necessarily reflect the views of my employer, CIBC.
To give you a little bit about IFIC, it is the national association of the investment funds industry. Canadians own approximately $749 billion in mutual funds, with almost 80% of those held in registered plans. Almost 50% of tax-deferred wealth is held in mutual funds.
Now, because of this, ensuring adequate retirement savings for Canadians is a very important issue to IFIC members. My remarks today will be centred around two distinct themes. First is fairness in taxation around investment options, and the second is fairness in retirement funding options.
With regard to fairness in GST or HST among investment options, an inequity exists in the application of GST or HST to mutual funds when you contrast that with the application of GST and HST to other investment options. The structure of a mutual fund is such that it is a separate legal entity distinct from the manager. It is either a trust or a corporation.
The mutual fund has no employees. It pays its manager or third parties for all services provided to it, including asset management services. GST or HST applies to those services because it is levied on the management fee charged to the mutual fund.
Now, if you look at other financial investment options, most services are provided by employees of the issuer. The GST or HST does not apply to salaries paid to employees. It only applies in limited circumstances where an external service provider is used by the issuer of the product. When the financial product is offered to the public, most fees charged are exempt from GST or HST.
Because of this difference in structure and because of the resulting difference of the application of GST and HST, mutual funds are subject to GST or HST in a disproportionate manner. The labour input to the offering of mutual funds is subject to GST or HST, and the labour input to other financial products is not subject to GST or HST.
This, in the end, will reduce the return to mutual fund investors, including the high number of RRSP and RRIF investors. This inequity always existed once the GST was implemented, but where HST now applies, the issue becomes much worse.
In order to alleviate this inequity and achieve more fairness in the taxation of investment options, IFIC recommends that there is a review; that the unfair and non-neutral application of GST and HST is changed; and that an equitable rate of sales tax is applied to management, advisory, and administrative services provided to funds. This would be consistent with the treatment of other investment products.
The second area I'd like to address is fairness in retirement funding options. There I want to talk a little bit about pooled retirement pension plans and RRIF income.
First, on pooled retirement pension plans, or PRPPs, IFIC wants to say that we very much support the initiative of creating PRPPs and the goal of providing accessible and straightforward retirement options to assist more Canadians to save for retirement. IFIC recommends that the investment of PRPPs should not be restricted to passive investment strategies, but much broader.
IFIC recommends that group RRSPs remain a true alternative to PRPPs. For instance, IFIC agrees that payroll taxes should not apply to any contributions to a PRPP. Consistent with this, IFIC recommends that payroll taxes no longer apply to contributions to group RRSPs to keep them on equal footing with PRPPs.
Finally, I'd like to address RRIF income. Canadians receiving income from RRIFs are not eligible for the pension credit, nor can they split RRIF income with a spouse until they reach age 65. This includes those individuals where their RRIF income comes from funds that were originally transferred from a registered pension plan. This can reduce the after-tax retirement income to those aged 55 through 64.
In contrast, those Canadians receiving income from pension plans are eligible for the pension credit, and pension income can be split with a spouse at age 55. This inequity is frequently brought up to our members by investors and investment advisors. In order to alleviate this inequity, IFIC recommends that the pension credit also be available commencing at age 55 with respect to RRIF income, and that income splitting also be available at age 55 for RRIF income.
Thank you very much.