My policy proposal to Jim Flaherty. Cc Stephen Harper

Jim:

You may have noticed that at no time since November 1, 2006 have I ever proposed to you a policy solution to the income trust “problem”. Rather all my efforts have been focused on “process” and the process of transparency in order to achieve policy accountability. That is because I learned on November 1, 2006 upon reading the study completed collaboratively by the Department of Finance and HLB Decision Economics entitled “The tax revenue implications of income trusts”, that income trusts DO NOT create tax leakage. Rather it is your methodology that creates tax leakage, since your “good:bad” analysis of income trusts versus corporations leaves out all the “good” associated with the taxes that are paid at the average rate of 38% on the 38% of income trusts that are held in RRSPs.

This is a fundamental error on so many levels its not worth elaborating and justifiable by you, on none. That said, my policy proposal has the special virtue of not requiring you to either recant or admit to this gross error.

Furthermore I will assume that the intent of your income trust tax was not a nefarious one that you perpetrated on behalf of the mangers of corporations who wanted to kill this superior form of business structure or the CEOs of life companies who wanted to kill this formidable competitive for retirement savings dollars that they were having a hard time succeeding at.

Therefore my policy proposal is as such. Create a new retirement savings vehicle, called the Brent Fullard Savings Plan (BFSP). Alternatively you can name it the JFSP (Jim Flaherty Savings Plan), as it will serve to save your bacon in the next election and that of your CON party members. The BFSP will position itself between the existing RRSP and the TFSP (ie your Tax Free Savings Plan) and borrows all of its measures from one or the other of the RRSP and the TFSP and maximizes tax collection for Ottawa and solves your awful income trust mess, by way of the following features of the BFSP:

- as with RRSPs, monies can be contributed to BFSP from pretax earnings at amounts equal to that of RRSPs, such that each $1,000 or contribution eligibility can be contributed to either an RRSP or a BFSP, but not both.

- all INCOME arned in a BFSP is taxable in the hands of the holder in the year incurred, which means more tax dollars are collected by Ottawa than either RRSPs or TFSPs

- all CAPITAL GAINS earned in a BFSP can be deferred if new securities are purchased during a six month period, consistent with your election promise of 2006, but restricted to BFSPs only. This will raise more tax dollars that the TFSP and will raise no less tax dollars than the RRSP

- for a period of 24 months, Canadians can transfer holdings of income trusts to the BFSP from their RRSP with no tax effect. The cost base of such transferred income trusts will be assigned a value of zero, which is in effect what the cost base is on these income trusts within their RRSPs presently for all intents and purposes. This means Ottawa is alos “kept whole”.

- the existing 31.5% tax will come into effect for all income trusts held in RRSPs and Pension Plans, although you would be well advised to recant the tax insofar as foreign investors are concerned and/or lower it substantially (given you were the one who reduced the withholding tax on corporate interest to zero from 15%?) and/or extend the phase in period beyond 2011

- remove all growth restrictions on income trusts, as the folly of that is obvious to anyone who lives outside of communist Russia and Central Planning mentality, especially given the dearth of investment capital in Canada and the devastating effects of the global financial meltdown on savings, retirement assets and proving the total folly of too mucg debt in the corporate sector a la LBO of BCE, had it proceeded as Jim Prentice had approved.

- the effects of this policy will solve all of your problems and get rid of “tax leakage” in the manner and for the reasons it was fabricated in the first place, as Ottawa will now be receiving full rates of taxation on the 38% of income trusts held in RRSP in the form of CASH, that will now be transferred to BFSPs and taxed at the average rate of 38% and PAID to Ottawa in the form of CASH, rather than deferred to future periods at higher accrued amounts.

Alternatively, scrap the entire double tax of income trusts held in RRSPs and your entire Tax "Fairness" Plan.

Poof, your problem is solved. You will look like a genius. You even have my permission to call it the JFSP. You can say its part of a major stimulus plan that is tax accretive to the government, which it really will be, in the way in which your so called Tax Fairness Plan clearly was NOT or the bailout of ABCP or GM and Chrysler are NOT.

You will also have to introduce strict new measure to deal with “thin capitalization” to prohibit and restrict the kinds of BCE LBO type disasters and tax leakage mistakes from bestowing themselves on Canadians. Pension plans will not be allowed to hold income trusts and can either convert them to taxable corporations or place them in a BFSP equivalent, failing which a two tiered pension system will be perpetuated and exacerbated under your watch

There you go Jim. I have solved one of your major headaches for you. Now you no longer have to call me a “creep” during debates in the next election. I simply want to see you succeed and have Canadian taxpayers achieve true Tax Fairness and recover the $35 billion you attempted too defraud them of.

No thanks required.

Your BFF,

Brent Fullard, B.Sc. M.B.A. BFSP