Today we learn that Flaherty has relaxed the rules on REITs to expand their businesses abroad and receive tax flow through treatment. This is a complete contradiction to Flaherty’s earlier policy pronouncements and policy rationale:
(1) If income trusts cause tax leakage, which has never been proven, then why exempt REITs?
(2) If income trusts are limited by Flaherty as to their growth, which they are, then why let REITs expand? And why internationally?
How does that benefit Canadians who are tax subsidizing this activity, if Flaherty's tax leakage arguments are in fact true?
Come to think of it, where is Canada’s New Government’s transparency on alleged tax leakage?
(3) The arbitrary rationale at the outset was that REITs are “passive” entities and that royalty trusts and business trusts are “active” entities. If anything that would argue for the reverse tax treatment. However, accepting that logic to be valid, how can international acquisitions and expansions of REITs be considered “passive”.
(4) This new measure concerning REITs totally contradicts Flaherty’s earlier attempts to eliminate interest deductibility of foreign acquisition debt. Interest deductibility simple means servicing debt with pre-tax cash flows, just like distributions on income trusts and REITs are serviced by pre-tax cash flows. So whu would Flaherty loosen the REIT rules in July 2008 by allowing REITs to acquire foreign properties and preserve their REIT status, and yet in June 2007 Flaherty was trying to shut that vert thing down via non-deductibility of foreign acquisition debt.
Bottom line: Flaherty’s tax policies are the result of zero logic and total lobbying by self interested parties all behind closed doors. Canadians are policy takers.....mushrooms of the Harper government, whereby they are kept in the dark and fed Stephen Harper’s Income Trust tax.
Ottawa proposes REIT changes
Canwest News Service
Published: Tuesday, July 15, 2008
OTTAWA -- Federal Finance Minister Jim Flaherty released draft legislation yesterday that would amend federal tax laws to implement a series of previously announced initiatives, including changes that would allow REITs to expand abroad and still be exempt from the pending federal tax on income trusts.
The final legislation, to be tabled in the fall, would implement measures announced as part of the last federal budget, but other items as well, most notably dealing with real estate investment trusts, or REITs.
Under the proposal, announced Dec. 20, the federal Department of Finance said Canadian REITs would be allowed to expand abroad and still be exempt from the income-trust tax.
The federal government originally stipulated that REITs had to derive a minimum of 75 per cent of its income from Canada in order to be exempt from the income trust tax, which takes effect in 2011.
But that changed in December, and the real estate industry applauded the move.
Stakeholders have until Sept. 15 to issue comments to Finance regarding the proposed tax changes.
Tuesday, July 15, 2008
Posted by Fillibluster at 8:36 AM