Sunday, July 8, 2007

Simple to the extreme

The entire income trust fiasco turns on one very simple point, so too the does the broken promise to never tax income trusts and the loss of $35 billion in Canadian’s life savings and the loss of an important investment choice that provides the 70% of Canadians without pensions with a chance for decent retirement income in today’s protracted low interest rate environment.

The simple point at issue is whether pension funds and RRSPs are tax exempt or tax deferred. Jim Flaherty’s tax leakage analysis treats the 38% of income trusts that are held in RRSPs and pension plans as if there are never any taxes paid on these income trusts’ distributions, not today, not tomorrow, but simply never. Even Jack Mintz acknowledges this methodological flaw in correspondence with me that states “I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero”.

There is no mystery to any of this for those who are receptive to the truth. The 18 pages of blacked out documents provided to Gordon Tait under the Access to Information Act prove it categorically. That’s why Flaherty has requested in writing that all these documents be returned. As if the were even possible after their publication in newspapers and billboards across the nation. What these documents reveal is available here under the heading: Public Hearing Support Documentation: Deconstructing Tax Fairness. You owe it to yourself to review these documents, lest their be any doubt in your mind.

Here we take one of the 18 blacked out documents and reveal the analytical deception that is going on. We know irrefutably what is going on since Dennis Bruce of HLB Decision Economics worked collaboratively with the Department of Finance during the Goodale public consultative round to develop the tax “leakage” model. Dennis knows first hand precisely what they are doing, and what they are doing wrong. The gross methodological error occurs on line G entitled Future Tax Revenues (Tax Exempt)(7). This is where the Department of Finance chooses to ignore the 38% of taxes paid on all outstanding income trusts by treating RRSPs as Tax Exempt, rather than tax deferred by not adding these taxes in their analysis. This is the epicenter of the income trust fiasco and the bureaucratic deception and policy driven sleight of hand.

To resolve this analytical difference of opinion between the Department of Finance and the realities of Finance 101 and Canadian tax laws, we simply need to turn to the Minister of Finance himself, who was commenting on the recently announced purchase of BCE by Teachers’ pension plan and foreign private equity, whose purchase many in the media have said will result in the loss of $1 billion in taxes to Ottawa per year. This is a sale Mr Flaherty has endorsed, by saying which of the following:

(1) "The purpose of the pension funds, ultimately, is to ensure they can honour their pension obligations. And there is taxation, of course, when pensions are paid out."

(2) "The purpose of RRSPs, ultimately, is to ensure they can honour their retiree’s obligations. And there is no taxation, of course, when savings are paid out."

The entire income trust situation turns on this very simple and central point. Many believed that the damage associated with this policy nightmare was limited to a handful (2.5 million) of Canadians, however it is now becoming obvious to all from the recent sale of BCE and the many BCE like companies that are sure to follow, together with the $200 billion income trust market itself, that will fall victim to the voracious appetite of foreign private equity and our own cannibalistic pension funds, that the Tax Fairness Plan to double tax income trusts held in RRSPs is simply a wolf in sheep’s clothing or a Trojan Horse that will result in nothing more than a Deficit Inducing Plan (DIP). The DIP has made possible by the combined actions of the Minister of Finance and most appropriately with the solid support of the NDP, who many refer to as the Dippers. Now I know why. Now you know why, as this whole fraudulent mess is simple to the extreme. Simple is as simple does. That said, it’s never to late to admit an error and take corrective policy action. Every day that we wait, may mean one more BCE, or one more Union Energy Waterheaters.

Since when was it ever intended that Canadians pay their phone bills and utility bills to foreign private equity and cannibalistic domestic pension plans? Think of it as Canada’s New Landlord brought to you by Canada’s New Government.


Dr Michael Popovich said...

" That said, it’s never too late to admit an error and take corrective policy action. Every day that we wait, may mean one more BCE, or one more Union Energy Waterheaters. "

I can see no foreseeable end to this fiasco--Mr Flaherty is not the kind of guy to sway from an action once he has taken it.

My sister worked with him in the Ontario government for several years & she has stated to me on more than one occasion that he is very decisive but once he does something , he never changes his mind let alone admit any fault.

I believe Mr Harper has the perfect underling to help him to implement his adgenda--unfortunately his abilities as a finance minister are very limited indeed.

If he cannot tell the difference between tax deferred & tax emempt , then we are all in trouble--somehow he has determined that RRSPs are tax exempt but pension funds are tax deferred.
Unbelievable-- who is this guy & where did he learn economics--possibly the same place as MR Harper??

The incompetence of these two almost seems beyond belief--at least I hope that is what we see here & not something more sinister--can we say SPP.

It is incredible to believe that they are willing to sacrifice the small time Canadian investor just to benefit the huge pension funds & other private equity.

Thank goodness there is one fact that will remain the same--we put them there , so we can also take them out.

Anonymous said...


The question of a class action against Flaherty or Harper is popping up throughout the blog. Brent’s answer is that Ministers are exempt from legal action. In principle, I understand that. If politicians can be sued for the bad consequences of the laws they promulgate, no one would want to be a politician. So, we can’t sue Flaherty for being the person that he is—pity.

But I do not, and never will, believe that we must accept this law. I will fight it every way I can—face to face, by letters and email, in blogs, politically and legally. You want to bet that I’ll be at Harper’s rallies any time he’s within 50 miles of my home. I’ll be wearing a Harper Halloween mask and waving my ‘Lyin King Harper’ placard. And if politically doesn’t work, I try legally.

As I read the Charter of Rights, the blacked-out data breached our rights under section 1. A good lawyer has told me “No, because Cabinet used that information to make a decision, Cabinet secrecy applies.” Okay, I accept that. But why did FINA not get a staff member to go to SEDAR and compile actual data from actual financial reports so that Canadians can see whether the Cabinet relied on true or false information? If our highest government officials are using crappy information, doesn’t Parliament want to know that? I do. What about you?

But the thing that really steels my resolve is the unequal and unfair treatment of 70% of Canadians who do not have government or big corporation pensions. Government pension funds are tax exempt when they invest in private income trusts, and no tax is paid until a pensioner receives a pension cheque. But RSP and RRIF holders will be taxed twice when they invest in public income trusts. I say that’s discrimination.

Section 15 is not just for race, origin, colour, religion, sex, age or mental or physical disability. Section 15 says “Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination.” Read again the words “Every individual is equal before and under the law.” What could be clearer. Check this out for yourself at

A tax law is a law. Every individual is equal before and under the law, subject to such reasonable limits prescribed by law (section 1.) Okay, in this case, what’s the reasonable limit? Well, to answer that question, the Court may need to peek under the shroud of falsehood and deception.

Dr Michael Popovich said...

I certainly have your back on this one--if anything legal can be done to force these guys to expose whatever information they used to fabricate the TFP , I will help you do it.

My wife & I are in our 50s--i was forced to retire form my Dental practice a couple of years back when I suffered a massive heart attack--we had insurance policies in place to wind up my practice & supply us with a reasonable nest egg--a reasonable nest egg however is only that--we had need of investments which would return a decent yield to supplement this & allow us to have a sustainable life style.

Income trusts were just the ticket--we invested wisely & only once we were given assurance by our Conservative MP that what Mr Harper & Mr Flaherty had said in their campaign promise would be cast in stone--no tax ever on income trusts.

We felt betrayed to the max--this was our own party which we had supported in every federal vote since we were able to vote & they proceeded to pull the rug out from under us with no reasonable explanation--certainly not 18 blacked-out pages.

As you can see , My level of "pissed-offedness" is way off the scale--if you can find any legal way that has any sort of even remote chance , let me know--I will help you any way I can.

I will be happy to try any avenue possible.


Anonymous said...

Doctor Mike,
A friend of mine went to the Laurie Hawn Town Hall in Edmonton last month. Hawn, like all the other Tory backbenchers does not care about the impact on individuals.

Hawn said that the $35 billion of capital loss is “BS” because the market had recovered. Well, I suppose if you can tell one lie, another is no big deal. My friend said he asked Hawn ‘When trusts are gone, what can the individual invest in?’ Hawn said “There’s lots of good stocks and bonds—banks, utilities, bonds.”

What Hawn didn’t say is that those yields are only 25 % to 50% of income trusts. My friend, who has a small pension and gets CPP, figures that if he follows Hawn’s advice, his monthly cash-flow will take a 30% hit. Like I said, Hawn doesn’t care. But why am I telling you something you already know?

By the way, my friend is not totally PO’d. He laughs “Those dumb b*ggers haven’t figured out that I’ll be paying them less tax.” But I haven’t mentioned to my friend that Flaherty and Hawn will be taking away his trusts to give to American investors who won’t have to pay tax.

nineofiveland said...

Well I hope each and every investor with a dividend reinvestment plan in BCE will curse Harper and Flaherty with every line of calculation to get their adjusted cost base .. years and years of dividends reinvested .. decades for many .. then the final insult when capital gains taxes hit the fan .. oh .. and where will the proceeds of their forced BCE sale be invested? .. in a nice income trust producing good cash flow and providing a ton of tax to Ottawa? .. NOT!!!

Dr Michael Popovich said...

These guys that insist that the markets have recovered are as full of crap as Flaherty & Harper--the portion of our personal portfolio in trusts were invested in all areas of the trust market with weighting dependiing on the conditions at the time--we also owned income trust funds to reduce the risk--outside the income funds , we had a minimum of 11-14 different trusts--the rest of our portfolio was in stocks , bonds , fixed assets--sounds good to a point.

After Oct 31 , the trusts were down almost 30%--since then they have recovered to within 10% of where they were & this was with some fancy juggling to improve the gains--also had capital gains & losses to offset some of the tax--in the meantime the TSX has increased approx 9-10% above what it was on Oct 31--that means we are still down about 20% --& this was with a well-diversified portfolio.

Frosts me to no end when these guys can say that we are back to where we were--even if that were the case , we still lost the 10% minimum capital gains of the TSX gain.

These guys are clueless or just don`t care.

They have classified us as greedy old fart investors from the beginning--the thing is , our only fault was hoping to make a decent return & of course trusting these guys--&^%$#%^*(&*^

Mike p.

Bruce Benson said...


Myself as a retired individual do truly understand where you are coming from. I too have had my trust nuts slammed between two bricks called Harper and Flaherty. I have not calculated nor do I know how to calculate the true losses I have sustained. Some stocks have been sold since the Halloween Massacre. Some stocks were bought following the infamous promises. Overall, my income has dropped several hundred dollars a month starting Jan 1, 2007 and my income will get nailed another 31.5% in just over 3 years. That's assuming there is an income trust around to pay a distribution. If all the trusts are gone by 2011 then my income will get nailed by approximately 50 - 60% because I will be forced to accept much lower return on my much diminished capital base. My estimation is that I currently have lost over $70,000 thanks to Harper and Flaherty's lies. I have no way to recover the losses. So am I PO'd, ABSOLUTELY. Is it personal,YES. I have never been a political activist but I will work very hard trying to get the PC's removed from power. This madness must stop. At least when the Liberals were in power, they pretty much screwed everyone equally but never before have I been singled out and been subjected to bias and prejudice by a mean spirited incompetent government. Am I pissed, you bet I am. As far as I can see, our only salvation is the Liberals. If the Liberals do achieve power and don't honour their promises then it is truly time to look to a different country. Maybe they might have some appreciation for a small investor.


PS. Mike if you and any other CAITI members would like to contact me directly you can write me at

Dr Michael Popovich said...

Bruce ,
Thanks for the email link.

Mine is

I do believe as well that the Liberals are our only hope--I have never supported them before since I was always a faithful Tory--those days are over forever unless the old PC party returns from the ashes of the Peter McKay debacle.

If the Liberals back down on their promise after they are put into power , there will be hell to pay from us for sure--my buddy Mr turner will be looking for body bags & we will be looking for a new country.

I think we have to do what we can to support their return to power--i have found them to be much more willing to discuss the issues & not condemn what I am saying without giving it some thought.

My local Conservative MP in Elgin-Middlesex near London Ontario is Joe Preston--I have talked to him several times at length about this issue--he had done very little research into trusts prior to voting on the bill--he told me that the majority of MPs rely totally on the direction given them by their ministers on most bills because they do not have the time to look into them themselves--he told me that afterall the ministers are the experts---aaaaaaaaaaaaaaaa!!!!!!!!

He mentioned to me twice that my knowledge of trusts was far superior to his--should have let me vote I guess.

The Liberal candidate contacted me when I showed interest in the trust file--I found her to be very fair , a great listener , & willing to be educated about trusts.

I , like you , have never been a political activist--the time has come for me to step up & do more--I will do verything in my power to elect this person & remove the present MP.

Here`s hoping that day will come before there are no trust investments left for our income purposes.


proud_to_be_Canadian said...

The Conservative legacy: Avro Arrow debacle, NAFTA, lyin' Brian Mulroney, rampant privatization and now this: the premeditated transfer of $25 billion in wealth from individual Canadians to US private equity.

I don't know why anyone is surprised. Shocked, yes. Sickened, horrified yes. But surprised? No.

Dr Michael Popovich said...

As our finance minister in Ontario , Jim Flahety was a disaster--he was running a secret deficit when he left Ontario --his most ingenious plan was to sell off some assets to cover it--unfortunately for him , he ran out of time & assets & he was exposed for the fraud he was.

Lucky for him & us there was a position availabe in Ottawa where his vast experience could be put to good use--he gained valuable experience in the fine art of a good shafting in Ontario--was able to carry on the tradition in Ottawa-- just wonder where he will go next--maybe the people of the world need a good raking over--the IMF probably has good job for him somewhere.

You can move a turkey from one location to another--however , he is still a turkey!!!!


Randy Meyer said...

Bruce & Mike:

The "trust have recovered" line is the same crap that I took Jonathan Chevreau to task over. He wrote an article "Un-Boo" about how ITs have recovered fully since the Halloween scare.

Since he is supposedly a smart financial guy, being a financial writer and all for the National Post, I offered him the deal of a lifetime. I would sell him my units for 5% less than the last closing price before Flaherty’s Halloween announcement. (i.e. before the BOO!). All he'd have to do is immediately sell the units at market open and make a minimum of 5% in one day. How great is that! No smart financial guy would refuse that; would they?

Apparently the BOO was still in him as he did not take me up on my offer.

I suggest you do the same with any clown who gives you that line. Money talks and bullshit walks. Watch all of these guys walk so you know what they are giving you.

Bruce Benson said...


The CON's myth making machine is still alive and well. You and I both know that the income trust recovery is another lie being perpetrated by the Lyin King Harpo, it's not my fault Flaherty and the rest of their mindless useless minions.


Rand Meyer said...


I agree with you. That's why we have to keep getting the message out and publicly challenging guys like Chevreau, Corcoran and other so called "mainstream media".

As much as the CONservatives are bold faced liars, the MSM is actually worse. They perpetuate the lies and give validity to them when they should be doing the cold hard research of the facts. The MSM are actually a greater threat to democracy then the lying politicians.

It truly is disgusting.

Dr Michael Popovich said...

Do trust people never sleep!!!!!!!!!!--it appears that our hostility keeps us awake at nights--damn those Conservatives--i have not had a good nights sleep since last Oct.

Those media guys are real knobs--it appears that the message has come down from the top to curtail any criticism of the Tax Fairness plan--this is what happens when too few own so much of the media.

Harper did an excellent job of putting a gag on those guys right from the get-go--appears there is no changing them now--I have written them dozens of times with not one response--might as well of written to God--had about as much of a chance of a response I think.

Good thing we like writing letters because that has become our main hobby these days!!

Been too hot to golf anyway>


Kephalos said...

I agree with the comments here by the good Doctor and Bruce Benson. My question is 'How do we translate our anger to where it will have a good result?'

The good result will be to get the 31.5% tax off the books, and to force the federal government to get its long nose and interfering nose out of the equity markets of Canada. We do not need a trust law to ensure free equity market equality of citizens in the market. We had that. This Tory government has damaged the public equity market in Canada, and done so for the benefit of itself and, I strongly suspect, some large companies, mutual funds and others who feel threatened by a free Canadian investor. This Tory government has damaged the existing savings of hundreds of thousands of Canadians, and future retirement investment opportunities of some 70% of Canadians.

We need to get this message to the grassroots level, to the streets of our cities, and even the sidewalks and parking lots outside of the Tory MP offices. You know, things like placards, and people wearing ‘I’m an ex-Tory’ bags over their heads at Town Halls and political rallies; and protests against the Canadian newspapers for failing to get to the bottom of this story. The Canadian press is a democratic failure—plain and simple.

We need to convince our local Tory MP that his or her re-election is in deeper and deeper trouble because of Harper and Flaherty. When he or she sees local support eroding, stand back and watch a pumpkin turn into a backstabbing political survivor.

Dr Michael Popovich said...

way to go Katie!!!!!!!!!!!!

On more than one occasion Falherty has stated that it is not up to governments to interfere in capital markets & that the markets will in most cases police themselves.

Just wish they would heed their own advice--the trust market was regulating itself just fine--the weaker trusts were dumping distributions & falling by the wayside--the stong were survivibg--as investors we have the ability to determine which we choose to buy based on what knowledge we can accumulate--if we invest poorly , we lose, if wisely , we win--same as with any other investment vehicle.

It is the survival of the fittest for both the trust & the investor--we all know this going in & we are willing to accept the risks--so leave us alone!!!!!!!!!!!!

I firmly believe this whole thing did not come about as a result of a tax grab--far from it--their tax take was just fine as it was--a lot of the sqawking came from 2 areas : the corporations who were losing market share & from the provinces whose equalization payments from the feds did not reflect the fact that many investors were concentrated in certain provincial jurisdictions & they did not receive the portion of the tax they thought they should have if corporations remained taxed at their normal levels.

These 2 determining problems could have been cleared by very simple means--lower corporate tax to a level that would allow them to compete with trusts with a resultant increase in dividend levels to resemble those of trusts--improve the equalization formula to correct any inequities due to low corporate tax being paid in certain aeas of the country.

Both are simple fixes which required nothing more that some time & some thought.

These guys buckled under pressure from several areas with no good reason--if they had anything to support their decision , they would have shown us by now.

I am prepared for the bag over the head at the next meeting treatment--my 30 odd years of Tory support has become a source of major embarrassment for both my wife & myself.

Running these guys out of town will go a long way to make us feel a lot , lot better!!!!!


Bruce Benson said...

I wonder why nobody seems to be listening to us. Are we that far from political reality? Maybe it is time to set up the blockades. CN, CP and VIA rail comes to mind. Highway 401 maybe. If the First Nations can do it, why not us? We probably have just as many rights considering the 35 billion that was ripped off us. Time to get in the face of the media, lying PC politicians and the general public. The apathy is beyond description. Hmmm, isn't there supposed to be millions of us? Well, where the hell are we? How long can they ignore us? Hopefully not forever. I think the Energy Trusts and CAITI are out only hope of organizing any kind of mass protests if the Liberals are unsuccessful in gaining power. Remember to support your local Liberal candidate, we cannot let this die.

Dr Michael Popovich said...

To all the members of the pissed-off " used to be Tories " club-----Bruce Bensons statement that we must get behind the Liberal candidates is spot on--these guys offer the only alternative for us--all other parties have washed their hands of the whole thing.

Our present Conservative MPs offer us nothing other than the same old party rhetoric --& that is only if they will talk to us at all--the Dippers have an adgenda known only to them --the Bloc are idiots & only vote with the government " for the money"--the Green are not a national party. It appears the LIBerals are our only hope.

The problem I have found in our riding is that there is no organization among the trust investors--it seems like there sure are very few of us which surprises me to no end--where did we all go--as Bruce said , we must organize & make some noise.

My riding is Elgin-Middlesex (London ,St Thomas , Chatham) in southwestern Ontario--if there are any trust investors in the area , please contact me even if it is just to commiserate about our misfortune.

We need to organize any way we can to plan out local strategies & help elect our local Liberal candidates.

MY email:


Anonymous said...

Subject: Trust Boom...It's the "income" stupid

Dear Mr. Corcoran.

You are a very much respected financial commentator, but in my opinion you are on the wrong side of the fence on the income trust issue.

Replacing the income from an 8% income trust would require a 100% capital gain on the sale of the trust, to have enough capital to achieve the same income from a 4% GIC or a 4% 10 year Canada bond.

I like many seniors have a diversified portfolio through 40 years of RSP/RIF planning and investing for retirement. Killing ‘income trusts’ deprives myself and other Seniors of a high yield investment market which in many cases also provided monthly income.(amply taxed through the mandatory RIF withdrawal system) The Civil Servant crowd may not need monthly income from trusts, but as we go forward, more and more Canadians will be converting their RSP’s and defined contribution pension plans to registered income funds and the choices for yield are very limited now.

I purchased income trusts to safely enhance the yield on my portfolio; while capital gains are enjoyed, the gains are secondary to the monthly cash flow needed for a 10 to 15 year period from a RIF.

Jack Ellefson,