Monday, August 20, 2007

Flaherty's "fairness" runs afoul of Charter rights



It’s no  wonder that Stephen Harper didn’t see fit to celebrate or acknowledge the recent 25th anniversary of the Charter of Rights and Freedoms, as it  represents just another check and balance that he would rather not subject  himself or his government to.

Flaherty’s Tax Fairness Plan to tax income trusts runs afoul of the Charter of Rights and Freedoms, as it is premised on a wholly arbitrary measure that discriminates between those Canadians who are not members of pension plans and those who are. The recently  announced purchase of Golf Town Income Fund by OMERS provides a perfect example. This very same business held by Canadians in their RRSP is subject to  a 31.5% tax and growth restrictions on its business activities, whereas upon transfer of Golf Town to OMERS in which Golf Town will fully retain its trust  structure, no such tax and no such growth constraints will exist. This government has made Golf Town worth more to OMERS (as the buyer) than it’s is  worth to average Canadians (as sellers). This government is double taxing the  earnings of Golf Town held in RRSPs and not double taxing the earnings of Golf Town held in OMERs. One retiree benefits from the absence of the tax, the  other retiree suffers.Beyond that, nothing else is accomplished, as Golf Town continues on as a trust. To the extent that tax leakage existed or reinvestment in the economy is imperiled or that Golf Town was nothing more  than a ponzi scheme, none of that will have changed. Only the  owners/beneficiaries will have been changed. Strange policy outcome indeed.

Taxes and new tax measures are commonly used by Government to incent certain behaviour among taxpayers and to also discourage other behaviour among taxpayers. Nothing wrong with that. However widely panned that it may be, Flaherty’s “Green Levy” is a good example of the carrot and stick nature of taxation. The Green Levy introduced incentives for certain fuel efficient cars and penalties for certain fuel inefficient cars. Nothing prevents Canadians at large from owning and purchasing a Toyota Prius versus owning a new Hummer. There is nothing inherently discriminatory about that, as all Canadians can freely choose whether they are going to receive the tax incentive or pay the tax penalty. Freedom of choice.

The same however  can not be said for the tax on Golf Town Income Fund. Neither I, nor any other  Canadian can simply opt to become a member of OMERS. Neither I nor any other Canadian can simply opt to organize myself as a group pension plan. The RRSP  was brought into effect in 1957 by  Liberal Finance Minister Walter Harris to enable average Canadians to enjoy the same tax deferred savings benefits as those Canadians who were members of group pension plans. This Conservative Government is taking this privilege away, and it is doing it in a  way that conveys “lost” value from average Canadians in the form of  “found” value to Group Pensioners and more specifically their Plan Sponsors, who for the most part are Governments themselves, like the Government of  Ontario in the case of OMERS. This is both discriminatory and an exercise in self dealing, since this practice extends to the Federal Government’s own pension plan, as with the purchase of Thunder Energy by the Public Sector Pension Plan. No doubt, more purchases by government sponsored pension plans  will follow those already made by OMERs, PSP, Teachers, Caisse, AIM(Alberta) and BCIMC.

The Charter of Rights and Freedoms holds:

Equality  Rights
Equality before and under law and equal protection and benefit  of law        

15. (1) 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 and, in  particular, without discrimination based on race, national or ethnic origin,  colour, religion, sex, age or mental or physical  disability.


Therefore this taxation of Golf Town Income Fund held  in RRSPs  which does not apply to the very same trust held in a group pension plan, creates discrimination between citizens who save for their retirement and those whose retirement is provided for them. This does not constitute “equal benefit of the law without discrimination”. The Tax Fairness Plan involves arbitrary distinctions amongst Canadians based on their pension arrangements and doing so is inherently discriminatory since I can no sooner become a member of a group pension plan (which benefits under this  law), than I can choose to alter my ethnicity or race.

Forgetting the Charter for a moment, let’s examine the legislative policy intent of the income trust tax. Was it explicitly contemplated that the tax was intended to  convey benefits to one group of Canadians to the detriment of another group?  Was it intended to convey value and restrict investment choice from the 70% of Canadians without group pensions to the 30% with? If so please let me know  where this subliminal message appears in the following provisions of the Ways and Means motion. Surely tax fairness did not intend for the wholesale introduction of tax inequity and the arbitrary distinction between Canadians, with the purpose of benefiting those with group pensions and penalizing those without.

If anyone is driving the Hummer in this situation, it’s those who belong to OMERs and not those are denied such post retirement  luxuries.

Notice of Ways and Means Motion to Amend the Income Tax Act

That it is expedient to amend the Income Tax Act, in accordance  with proposals announced by the Minister of Finance on October 31, 2006, to  uphold the value of fairness for Canadians by:

    * levelling the playing field between  trusts and partnerships and corporations,

    *  ensuring that taxes are not unfairly shifted onto the shoulders of Canadian  taxpayers, especially Canadian families,

    *  strengthening Canada’s social security system for pensioners and  seniors,

    * helping corporations make choices  that are consistent with economic growth and competitiveness,  and

    * bringing Canada’s approach to the  taxation of trusts and partnerships back in line with other  jurisdictions,

10 comments:

Dr Mike said...

I recently sent several Emails to my member of parliament for Elgin-Middlesex-London JoePreston (Conservative) asking him to clarify the difference between Trusts held within RRSPs & the same trust held within Pension Funds.

His non-response has left me with the impression that either there is no difference or that he does not understand my question or worse yet , he does not care about his constituents who believed their campaign promise to not tax trusts.

The concept within the question is simple enough--a trust in one pension plan should be the same trust held within another pension plan--same trust , just different plan.

As a result the tax treatment should be the same--why in this case is it different.

Also , this same trust that was a terrible ponzi schemed investment must still be the same when it is held within a public pension--why would a pension fund run by the government buy such a terrible investment that they themselves berated extensively in front of the finance committee hearings held to display their displeasure for the trust format.

Don`t these guys know that you can`t have it both ways--well , in their case maybe they can & are about to do it big-time to our detriment.

Got to love them all--shaft the 70% of us who are just little guy investors for the benefit of the 30% protected by pension funds--thanks a lot .

I , & the other trust owners will not forget--we are looking for an alternative who will at least listen & deal with us fairly.

Today in a speech to farmers in southwestern Ontario , Mr Dion said : "Canadian farmers deserve a government that will always be honest with them. A government that keeps its promises. And that is what they can expect from a Dion government - I will always be honest, I will never make a promise I cannot keep, and I will never let ideology get in the way of fair, common sense solutions to support Canadian farmers."

If Mr Dion can do what he has said today , he will prove himself to be the man Mr Harper is not--I for one , will support him with my vote.

Dr Mike

nineofiveland said...

The whole "tax fairness" label smacks of the kind of thing done by Bush & Co. in the US, where legislation such as "no child left behind" actually does the exact opposite.

My generation often had "defined benefit pension plans" , whereas today's likely has a "defined contribution plan" which is likely just a group RSP. The bottom line is that these folks along with the small business self employed get the short end of the stick.

Canadians deserve better, keep the fight going!

Anonymous said...

The tax on income trust perverts the spirit of sections 1 and 15 of the Charter of Rights. We have been lied to, and denied the due process of objective and independent fact finding. We were told that trusts caused tax leakage. But when the ignoble Finance Minister was pushed to show proof, his proof excluded tax revenue from RSPs and RIFs. And not five months later, when Teachers’ Pension Plan invested in BCE, the selfsame ignominious Finance Minister told us there would be tax revenues from BCE “WHEN PENSION PAYMENTS ARE MADE.”

Beside being lied to, holders of trust units have been made second-class citizens. For those who fund their own retirement savings, the governments of Canada will tax us twice. For those who have a defined benefits pension, the governments will only tax them once. Unbelievable that a Prime Minister would think that this is fair, democratic or Canadian.

It is not enough to vote against Harper, Flaherty and the Tory gang of liars. We must take to the streets of democracy, and quietly, politely and as good Canadians work to convince all other Canadians that the Tories must be not only be defeated but banished to the ignominy they so rightly deserve.

Ignoble? “Of low character; mean; base”. Ignominy? “Disgrace; dishonor; public contempt”, Random House Unabridged Dictionary.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

I don’t have to tell you that the only thing politician’s care is to keep their jobs, mean while once they are elected they think that there is enough time until the next elections to forget and neglect the people that elected them, short term memory. Unfortunately for us the TRUST issue to the newbie CONS in power, was considered a neutral wash by their election consultants. So they went ahead and did whet the LIBs didn’t dare to touch for quite some time now.
What they understand is the power of the numbers and if we start showing up ORGANISED in groups with 4-5 people asking questions in their meetings with the constituents then may be they will start understanding that this will hurt them as much as the people that were in the receiving end of these stupid decisions. When people lose real money and the ability to a continuous steady income, the issue is not going to be forgotten and doesn’t come as neutral and a wash in their election consultant’s balance sheet.
We need to organize in LOCAL CAITI chapters and make sure that this issue stays in the front of every town hall meeting.

Anonymous said...

And the BLOG police took off my message on how to contact other CAITI members. I was just responding to a request by our well-regarded Dr Popovic moderator of this blog. I am sure there are some "great” reasons for deleting that message, like privacy etc etc blla blla blla. Do you see what happens when you have a little power in this case DELETE MESAGE BUUTON and start making "decisions" kind of a "TAX FAIRNESS PLAN" happens?

Anonymous said...

RCMP is WATCHING YOU ALL

Anonymous said...

Anonymous said on August 23, 2007 11:20 AM "We need to organize in LOCAL CAITI chapters and make sure that this issue stays in the front of every town hall meeting."

I agree we need LOCAL action because we will decide this issue at our local ballot boxes. What's the best way to do this? That is the question.

Anonymous said...

It is time for a re-organization of CAITI in local chapters. Organized in the same geographical areas as the election ridings and constituencies as per the following link:
http://www2.parl.gc.ca/Parlinfo/Compilations/HouseOfCommons/MemberByPostalCode.aspx?Menu=HOC

39TH GENERAL ELECTION (2006.01.23) - WINTER
Government: 124 Opposition: 184 Minority: 60

Political Affiliation Elected Members Number of Candidates Number of Valid Votes Percentage of Popular Vote
Conservative Party of Canada (2003)
124 308 5,370,903 36%
Liberal Party of Canada
103 308 4,477,217 30%
Bloc Québécois
51 75 1,552,043 10%
New Democratic Party
29 308 2,590,808 17%
Other 1 635 827,709 5%
Total 308 1,634 14,815,680 100%

So all we need is 308 local chapters of CAITI one for each MP ridings and from what I saw at the membership lookup, there are plenty of members in each riding. On mine, I could find at least 20 original members of CAITI. Once you know the names then on www.411.ca find their phone numbers and contact them with the idea of the local chapter. Once you have accomplished that take it to the next step. Take the initiative and invite one Saturday or Sunday all the members in your backyard for an informal get to know each other, ask each and every one to bring a friend or some one with them.
Identify the people with more energy initiative and free time to have a committee and a chair person.

With CAITI-s CENTRAL, help lets identify 10 short strait to the point questions to ask MP-s according to their political parity affiliation (40 questions all together with follow-up )

Find your MP phone # address and start asking when he is going to be in town, when he is going to meet his constituents, show up in these meetings with fellow local CAITI members. Start asking the questions and demand answers. Keep in mind LIBerals need to be reminded the same, NDP and Block MPs need to hear it loud and clear too. The CONs bench backers need to start defection and express discontent.

Nothing is substitute for DRECT ACTION that is the only way to make waves.

Grenwolde said...

For more material on the Canadian Charter of Rights and Freedoms I encourage you and your readers to visit www.charterofrights.ca -- an unbaised, plain language, and interactive look at the Canadian Charter of Rights and Freedoms. It also contains relevant case law and precedents.