If Flaherty were any dumber, his name would be Jack Layton

At the public hearings on income trusts, the same public hearings at which a senior Department of Finance official testified; “I guess if we were incompetent, we wouldn’t admit to it”, Jim Flaherty was making a big deal about the fact that income trusts, in his opinion, were owned far too much by US investors and said these US investors didn’t pay enough taxes, by way of the 15% withholding tax. To drive home this point, Flaherty had visual aids that consisted of huge boards, each one dedicated to the ownership breakdown of a given income trust, that he hung around the room. There must have been at least 8 or 10 of these things hung around the room to support the point he was making. Unfortunately, those 8 or 10 boards cheery picked to make his point du jour, meant that Flaherty was ignoring the facts pertaining to ownership of the other 225 trusts, that he conveniently ignored in his snake oil salesman pitch to Parliament.

Any intellectually honest person would want to know the facts. To know the facts one need only go back to the Goodale Public Consultation Paper of a year earlier in which the Department of Finance indicated that income trusts were owned as follows:

Non-residents (including US): 22%
Taxable Canadians: 39%
Tax Deferred RRSPs and Pension Plans: 39%

The truth paints quite a different picture than the one that Flaherty was trying to depict. Meanwhile, Flaherty’s other argument was two-fold. He argued that the non-resident holders of income trusts ONLY pay a 15% withholding tax. Only 15%? This from the very same person who a few short weeks later reduced the withholding tax on interest payments paid to US residents from ONLY 15% to ZERO? How can 15% withholding tax paid on the distributions made from the pre-tax business earnings of an income trust be considered insufficient, when ZERO % paid on the interest made from the pre-tax earnings of a corporation is the very tax change that HE HIMSELF brought into effect?

Meanwhile if the non-resident ownership of income trusts is a central justification for Flaherty’s tax, then let’s examine what his tax has meant in terms of the ownership of these businesses, before and after his measures. Noted above are the ownership levels of trusts before Flaherty’s measures.

Meanwhile, email me at brent.fullard@rogers.com for a list of the $56 billion of trusts acquired as a result of Flaherty’s trust tax, which reveals the following:

Non-residents (including US): 44%

Therefore, Flaherty’s trust tax has increased the foreign ownership of these trusts, which he testified is a bad thing, from 22% to 44%. Meanwhile the reason that he cites foreign ownership to be a bad thing is that foreign investors “only” pay a 15% withholding tax. Meanwhile all these acquisitions of trusts, have been done by way of LBO’s, whose extensive use of debt, combined with Flaherty’s elimination of withholding tax on interest, means that ZERO taxes are paid. Flaherty has simply made the two things that he cites as bad, worse.

Flaherty’s income trust tax is a tax that is only levied on publicly traded income trusts, and only tax deferred accounts like RRSPs get nailed with it. Therefore, this implies that there is something inherently wrong about income trusts held in deferred tax accounts, according to Flaherty’s twisted value system, as he is taxing investments made to support retirement income, the reverse opposite of why RRSPs came into existence in the first place. And yet, Flaherty’s tax has seen a large number of these trusts acquired by tax deferred pension funds, an outcome that is in opposition to what Flaherty has deemed to be bad? That’s because Flaherty has given the pension funds a tax arbitrage carve out, by allowing them to own income trusts “privately” and pay zero tax, whereas RRSPs that own these very same trusts “publicly” are taxes at 31.5%.

This is Flaherty’s idea of a Tax Fairness Plan. Meanwhile the very “evils’ concerning ownership of trusts by non residents cited by Flaherty in his testimony before Parliament, have only been made worse, by the fact that foreign ownership of these trusts has now doubled and the tax rate that they pay has gone from 15% to zero.

This policy was only made possible and passed into law with the blind support of Jack Layton and the NDP, who ostensibly are opposed to foreign ownership of Canadian businessed, ostensibly believe in tax fairness and profess on their website to be champions of on behalf of protecting people’s retirement savings and and ensuring people’s dignity during retirement. Meanwhile the NDP’s actions in real terms, ia anything but

Now you now, why I said that if Flaherty were any dumber, his name would be Jack Layton. Pretty dumb, eh?