Follow Up Question For the Auditor General

Auditor General of Canada
Attention: Margot Booth
Manager, External Communications
Office of the Auditor General of Canada

Dear Ms. Booth:

I have been copied on the correspondence below that you had with Mr. L. on the matter of the pending taxation of income trusts, commencing January 2011.

Our concerns have been renewed and heightened as a consequence of the ongoing takeover of income trusts by foreign entities using structures that are designed to evade the payment of taxes in Canada.

For example, the $4 billion takeover of Harvest Energy Trust by state owned Korea National Oil Company announced last week by way of debt leveraged buyout will mean that Canadian taxpayers will forfeit the $908 million in taxes that were collected by the Government of Canada and used to fund needed social programs from the distributions paid by Harvest Energy trust to its unitholders in the last five year period. Harvest is but one example of what is going on here and which will lead to the inevitable loss of $7.5 billion in annual taxes, not to mention the permanent loss of $35 billion in Canadians hard earned life savings. Caused by the income trust tax, whose allegations of tax leakage have only taken the form of 18 pages of blacked out documents as the basis for the Minister of Finances’ “proof”.

However we understand and are somewhat astonished to learn from your letter below that the Auditor General is unwilling to comment on policy or to audit the veracity of the Minister of Finance’s claims of alleged tax leakage from income trusts. We also understand that the Auditor General refused to answer a a similar question posed to her in the attached letter dated February 28, 2008 from Liberal Members of Parliament, this despite the fact that the Auditor Generals defines her role on her website as “"Parliamentarians need objective and fact-based information about how well the government raises and spends funds. The Office of the Auditor General is an independent and reliable source of such information."

Evidently not, since the Liberal MPs’ information request went unanswered by the Auditor General for what appears to only be political reasons?

As such. Mr. Lewicki and I would like to pose a much simpler question to you that avoids asking the Auditor General to comment on policy concerning income trusts or to even provide any transparency or accountability on the matter of alleged tax leakage

Our question, which is two fold in nature is a generic question that pertains to methodology in general, and is a very simple and straight forward question for you to answer without much effort or time required on your part. As such we look forward to a prompt reply.

First, please confirm for us whether or not the Auditor General requires that tax matters and budgeting for the Government of Canada be conducted on an accrual basis or not. Yes or no.

And second, given that we understand that the Auditor General does require the Government of Canada conduct its budgeting on an accrual basis, that it would logically follow that any analysis for any new tax measure be conducted on an accrual basis as well, and as such the taxes that are collected from income trust distributions paid to income trusts held in tax deferred savings accounts, such as RRSPs and pension funds, would under an accrual accounting basis, be fully included, as if they were received in the accounting period in question. Please confirm whether this is true, yes and no and please provide the rationale.

Again, we are not asking the Auditor General to comment on policy or even to provide numbers. We are simply asking a broad based question that is completely generic in nature and fully within our rights as Canadian taxpayers to know the Auditor General’s position on.

Thank you in advance.

Yours truly,

Brent Fullard
President
Canadian Association of Income Trusts Investors/Taxpayers
647 505-2224



Subject: RE: 18 pages of Blacked Out documents as "proof" of tax leakage?
Date: Fri, 24 Apr 2009 16:11:56 -0400
From: Communications@oag-bvg.gc.ca
To: johnl

Dear Mr. L.

Thank you for your email of 7 April 2009 requesting an audit of the estimates of tax leakage that the government used in arriving at its decision to tax income trusts. Please accept my apologies for the delay in responding.

The government’s decision to tax income trusts is a policy decision and therefore something we cannot comment on. Our role is to examine whether the government’s management practices, controls, and reporting systems are in accordance with the policies that it has established.

I must further point out that we cannot report information that the government itself has classified as confidential. The information and advice that led to the decision to tax income trusts are considered advice to Cabinet and fall into the category of information that cannot be made public. Even if we audited this, we would not be able to report the kind of information (e.g. analysis) that you are seeking.

Because this is a matter of government policy, you may wish to pursue any income trust issues with your Member of Parliament, who would be in a better position to provide assistance.

Your sincerely,

Margot Booth

Manager, External Communications / Gestionnaire, Communications externes
Communications / Communications
Office of the Auditor General of Canada / Bureau du vérificateur général du Canada

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