John McCallum: of Flaherty, Bell and taxes

Flaherty, Bell and taxes
Financial Post
Published: Saturday, July 07, 2007

Finance Minister Jim Flaherty needs to clarify his position on tax-deferred vehicles and whether or not they cause tax leakage to the federal government.

In January, Mr. Flaherty claimed that income trusts cause tax leakage largely because the distributions they pay into tax-deferred vehicles like RRSPs pay no tax. It was one of the big reasons he decided to levy a 31.5% tax on income trusts. In reality, distributions to RRSPs are taxed, but Mr. Flaherty explained that since those taxes aren't collected until the funds are withdrawn, he can't consider them as government revenue. Here's what he had to say six months ago:

"Well, as Minister of Finance, I have a fiduciary obligation to the taxpayers of Canada today, not tomorrow."

In the Paul Vieira article, however, Mr. Flaherty takes the complete opposite view in order to assuage fears that should the Ontario Teachers Pension Plan acquire Bell Canada, there will in fact still be taxes for the government to collect. Pension plans are of course tax deferred just like RRSPs, and yet here is what the Finance Minister said this week about the possible takeover:

"There is taxation, of course, when pensions are paid out."

Essentially, what he has done here is given his blessing to tax-deferred vehicles for the 30% of Canadians who are fortunate enough to have a government-or corporate-funded pension plan while at the same time hampering the other 70% of Canadians who rely essentially on their RRSPs and savings for retirement. I wonder if this tax unfairness was deliberate or yet another unintended consequence from a Minister who is proving himself completely out of his depth with the Finance portfolio.

John McCallum, Ottawa

John McCallum is the Liberal party's Finance Critic

See also: Harper should fund RESP bill by halting BCE sale