Monday, July 28, 2008

MP Garth Turner gets it. When will Canada's journalists catch up?


Could it have something to do with the fact that they’re “owned” by Teachers and BCE?




From: http://www.garth.ca/weblog/2008/07/28/outrages/


On October 31, 2006, Jim Flaherty shocked a couple of million investors out of their shorts by dumping a 31% tax on income trusts. This was ten months after the Harper Conservatives won office by promising they’d never do such a thing. The reason given: If income trusts were not slapped down then giant companies like Bell would convert to trusts, and Ottawa would be out hundreds of millions in tax dollars.

As a result of that move, Bell was prevented from converting, which would have seen dividends paid to investors, who would have then paid income tax. About $800 million a year. Instead, Bell went shopping for new shareholders, leading to the takeover – about to happen – by the Ontario Teachers pension guys. To pull this off, BCE will be burdened with $32 billion in debt.

So, here’s the outrage: BCE will not be paying any corporate income tax this year or next year or the one after. Not a cent. Jim Flaherty just blew his foot off. Worse, a grossly-indebted company is now struggling, and on Monday laid off 2,500 people. There are thousands more to follow, I’m told.

This is another example of a government that has absolutely no idea of the consequences of its actions. Income trusts. Over-spending. Forty-year mortgages. Bragging the dollar up. And mighty Bell, now a mess of wires and junk bonds.

5 comments:

Robert Gibbs said...

Be Pragmatic: Vote Liberal

I respectfully urge all income trust investors who were betrayed by Harper, Flaherty & their CON ilk to be pragmatic when voting in the next federal election.

Only the Liberal Party has a much more compassionate and fair income trust policy, with a reasonable chance of turfing this CON cadre of crooks.


Additionally, why not help the cause and put "your money where your mouth is" by making a donation to the Liberal Party Of Canada.

A $100 donation, for example, will only cost $25, after a federal political contribution tax credit of $75.

Please see the donation webpage at:

https://www.liberal.ca/donate_e.aspx

Robert Gibbs said...

Liberals Propose New Income Trust Policy to Counter Conservative Mismanagement

February 13, 2007

Ottawa – The Liberal Opposition has a plan that could return as much as two thirds of the losses suffered by investors in the wake of the Conservatives’ broken promise on income trusts, Liberal Opposition Leader Stéphane Dion and Finance Critic John McCallum said today.

“When this minority Conservative government undertook what it knew would be a harmful action to Canadians, it should have taken the utmost care to minimize the damage it would cause its citizens,” said Mr. Dion. “The government broke a promise and imposed a radically higher tax that resulted in a $25-billion blow to the savings of hard-working Canadians.”

After hearing from numerous witnesses at the Standing Committee on Finance, the Liberal Opposition has a plan. It is proposing that the government repeal its planned 31.5 per cent tax regime and replace it with a modest 10 per cent tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately with the revenue shared equitably with provincial governments.

“Rather than considering what is best for Canadians, the Prime Minister simply decided that he was going to put an end to the income trust sector,” said Mr. McCallum. “After hearing from dozens of expert witnesses we have developed a proposal that is fair to Canadian investors, to corporations and the income trust sector as well as federal and provincial governments.”

Underpinning the Liberal proposals are four main policy objectives that should have been considered by the government:

• minimizing the loss of savings for Canadians who invested in income trusts;
• preserving the strengths of the income trust sector, notably a high-yield instrument for savers and for the energy sector;
• creating tax fairness by eliminating any tax leakage caused by the income trust sector; and,
• creating tax neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes.

The Liberal Opposition also proposes that the ban on new trust formations be continued, but that the government should commit to considering representations from sectors which can conform to the policy objectives listed above.

The proposal has already received support from Gordon Tait, an analyst with BMO Capital Markets, who had previously told members of the Finance Committee that extending the phase out period to ten years would likely return one-third of the investors lost savings.

“This new proposal would likely return at least of two-thirds of the losses experienced by the holders of income trusts after the October 31 announcement,” said Mr. Tait. “It would also ensure that Canadian investors continue to have a high-yield investment vehicle available to them.”

Dirk Lever, Managing Director for RBC Capital Markets, agreed with that assessment.

“I would concur with Gordon Tait’s view that at least two thirds of the lost value will be recovered,” said Mr. Lever. “It could be more.”

Yves Fortin, a noted economist who formerly worked for the Department of Finance, indicated that the proposal would put an end to any tax leakage alleged by the government.

“While I am not convinced that there is tax leakage, and expert opinions differ as to the existence or the extent of the tax leakage, this proposed 10 per cent tax would more than cover the problem,” said Mr. Fortin.

Dr Mike said...

My post :

As an old time Progressive Conservative the term "outrage" hardly describes my feelings today about the Harper/Flaherty "new" Conservatives.

When they first came to power I was willing to ignore things like the David Emerson flip--I even ignored some of their severe right wing religious views--I explained it to myself as Harper`s way of implementing a new vision for this country & since the Conservatives did it , it must be ok.

Wrong!!

My eyes were blown wide-open when while watching TV on Oct 31st 2006 , Mr Flaherty popped onto the TV screen & delivered a knock-out blow to the investment portfolios of many Canadians who had believed the Conservative promise not to tax income trusts--many of us did not own a single trust unit until the Conservatives were placed into power & we assumed it was safe to invest in these issues.

Since this time trust investors have been vilified as incompetent coupon clipping old farts with money to burn.

Unfortunately , the only thing burned was the savings of the people who could least afford it--seniors & small investors.

This is an "outrage" that needs to be rectified.

My hat is off to Garth for championing the cause & plight of these folks who were needlessly harmed by a callous gov`t who has only a majority on it`s mind--certainly not the well-being of it`s citizens.

Dr Mike Popovich--former life-long Conservative.

Bruce Benson said...

Robert:

I sent the Liberals a $100.00 check for the first time in my life. And yes, I have put my money where my mouth is, hope more trust investors do it.

Bruce Benson
Another former conservative.

Robert Gibbs said...

Posted at garth.ca
------------------

Conservative's Income Trust Policy Is Incompetent & Fraudulent

Not only has Flaherty's and Harper's income trust policy ACTUALLY caused 'tax leakage' (through the mostly foreign and pension fund leveraged buyouts of BCE and other Canadian trusts), but their statements and analysis justifying their flip-flop and betrayal of promises are incompetent and fraudulent.

Attention is also drawn to the fact that Flaherty eliminated the 15% withholding tax on certain payments (interest) flowing out of the country to foreigners.

As can be determined from the disclosed portions of the 18 pages of blacked-out documents released under an access to information request, Flaherty assigned a value of ZERO to the taxes that will be paid on income trust distributions received within RRSP or tax deferred accounts.

So, Dim Jim Flaherty, the Canadian Finance Minister supposedly responsible for the entire country's federal finances, doesn't even understand basic finance concepts.

Now, a first year finance student can tell you that a Sum to be received in the future is still worth something now, by calculating the Present Value, using an appropriate discount or Interest Rate.


The simple formula for this calculation can be presented as follows:

P = S(1 + i)^-n

Where:

P = Present Value
S = Future Sum
i = Periodic Interest Rate
n = Number Of Periods
(Note: The symbol ^ is used here to denote exponent.)


For the purposes of this "real world" example, we shall use the following reasonable parameters:

1) A marginal combined personal tax rate of 38% on trust distributions (per Dept. Of Finance) (federal rate of 26% & provincial rate of 12%).
2) A maximum combined corporate tax rate of 25% (per Flaherty's announcements) (federal rate of 15% & provincial rate of 10%).
3) An annual discount or interest rate of 3.56% (the July 24, 2008 Government of Canada 7 year benchmark bond yield as published by the Bank Of Canada).
4) 7 years for the number of periods that trust distributions may likely be considered to accumulate within a senior's RRSP before conversion to a RRIF and annual taxable withdrawals begin (as a senior not considering an annuity would/must convert the RRSP to a RRIF before he/she turns 72 years of age [72-65=7]).


So, a $100 distribution taxable in 7 years has a present value of approximately $78, with a concomitant present value of personal taxes of approximately $30, being $5 greater than the maximum corporate taxes of $25 that would be exigible (which empirical evidence has shown to be actually much less).


Calculation:

Present Value Of Distribution = $100(1 + 0.0356)^-7 = $78
Present Value Of Personal Taxes = $78 x 38% = $30
Maximum Corporate Taxes = $100 x 25% = $25


Now, as we all know, marginal combined personal tax rates can be a fair bit higher than 38% and effective combined corporate tax rates can be a fair bit lower than 25%, thus skewing the calculation and making Dim Jim's incompetence and hypocrisy even more apparent, but heh, you be the judge.