Monday, November 16, 2009

Today’s Hill Times: Harper-Layton Income Trust Tax: Time to ditch it

Your income trust tax is causing wholesale foreign takeovers and billions in lost tax revenue

By: Brent Fullard
Hill Times
November 16, 2009

State-owned Korea National Oil Company’s $4 billion takeover of Harvest Energy Income Trust announced last week, is but the latest example of what many experts predicted would occur in response to Stephen Harper and Jack Layton’s income trust tax, namely a wholesale foreign takeover of Canadian businesses and the resultant loss of billions in annual tax revenues to Canadians taxpayers.

To date, this policy has caused over $100 billion in takeovers, the vast majority by foreigners and/or through structures that evade taxes, and the loss of over $1 billion in annual tax revenue. A number that will rise to $7.5 billion in lost annual tax revenue, if Canadians’ paid elected Members of Parliament, from all four political parties, continue to do nothing about it, in their collective conspiracy of silence and neglect, concerning these adverse outcomes which are totally counter to the policy’s original stated intent.

By taxing income trusts distribution at 31.5% on top of the average tax rate of 38% paid on income trust distributions, for a combined tax burden of 62%, the true insidious intent of this policy from the very outset was to destroy the income trust market and eliminate this investment option for Canadians saving for retirement, especially the 75% of Canadians without pensions who had embraced this investment alternative, giving rise to its tremendous success.

Meanwhile, a deliberate loophole was created for the pension funds to evade this 31.5% tax and hold income trusts on a tax advantaged basis relative to RRSPs, defying the very principle upon which RRSPs were created in the first place over 50 years ago.

Success in Canada, such as the emergence of the income trust market, is something to be avoided and torn down by those who are guardians of the status quo and driven by self interest and greed. In this instance, it was the insurance industry, who were intent on destroying the competition for their retirement income products, and the CEOs of corporations who sought to perpetuate their gold plated compensation schemes assured them under the corporate model.

It is not of trivial importance to point out that the principle and foremost fiduciary duty of CEOs and Directors is to their shareholders, and to maximize shareholder value. And yet, here we have these very people charged with such a responsibility acting in a manner that is completely contrary to this principle fiduciary duty by lobbying the government to sabotage the very alternative that they know would achieve that end. This act of sabotage is a disgrace, that is only superceded by the disgrace of the Harper government complying with their wishes by falsely invoking the hoax argument that “income trust cause tax leakage”.

Harper’s tax leakage argument has been subsequently disproved by any number of highly credible groups including BMO. RBC, PwC, Deloitte and HLB Decision Economics. Meanwhile, the only “proof” offered up by Finance Minister Jim Flaherty is 18 pages of blacked out documents.

Layton’s blind acceptance of Harper’s income trust policy is the complete antithesis of everything the NDP party ostensibly purports to stand for:

First, this policy’s premise of tax leakage and the proof provided is an affront to government transparency and therefore accountability.

Second, the policy’s known outcome was that it would drive the loss of billions in tax revenue that is essential to fund needed social programs.

Third, the policy and its false pretenses were foisted on Canadians by corporations who were intent on maintaining their abusive practices of the past that were threatened by the income trust model.

Fourth, the policy was destined to hollow out the Canadian economy and leave these arbitrarily devalued trusts vulnerable to foreign takeovers and burdened by imprudent levels of debt by their new owners, as part of a larger tax avoidance scheme.

Fifth, the policy created an unlevel playing field between RRSPs and pension funds, thereby creating gross inequities between the 75% of Canadians without pension versus the 25% with pensions, who would exploit this “tax arbitrage” to make predatory purchases of income trusts.

Sixth, the policy imposed a $35 billion permanent loss in the life savings of over 2.5 million Canadians, causing many to lose the very means for their retirement income and making them more dependent on government assistance and social programs in old age.

These highly adverse outcomes are the shared responsibility of those who created them, namely Stephen Harper and Jack Layton and those who are passively allowing them to persist, namely Michael Ignatieff and Gilles Duceppe., whose total inaction makes willing accomplices of them both.

What do any of these “leaders” intend to do about it, apart from continuing to kow-tow to the insurance companies and corporate CEOs who foisted this nonsense on an unsuspecting public in the first place?

That’s not leadership. It is incumbent of each of these “leaders” to act on this matter, lest they be accused of “just visiting”, as Canada gets swallowed up by foreigners and taxpayers get stuck with the enormous ongoing bill borne out of sheer incompetence and benign neglect.

Brent Fullard is the President of the Canadian Association of Income Trust Investors/Taxpayers


Dr Mike said...

My comment to the Hill Times

Just Another Halloween

The kids were out trick or treating. The adults kept a watchful eye. In some areas the wind blew , in others , the snow flew. It was just another typical Halloween for many Canadians.

Unfortunately , those left behind in the wake of the 2006 Income trust massacre have never been able to celebrate. These are the small investors who lost a major part of their savings after relying on the promise of our Prime Minister & his Finance Minister to preserve these investments at all costs.

It was bad enough to be the victim of such a cruel move , but to be forgotten in the shuffle like yesterday`s news & abandoned by the Prime Minister in whom we had placed our trust , has left us financially terrorized & has left us very discouraged with our democratic system.

The very core of many of our beliefs has been shaken as it was us who hired these people , it is us who pay their way , & it is us who therefore expect them to “do what is right”. In the very least , we expect that if a new law , such as the Tax fairness Plan is brought to bear , they must be willing to be accountable for their actions. In my humble opinion 18 blacked-out pages , that were subject to an unprecedented recall by the Privy Council , smacks of cover-up rather than openness.

A responsible government would have consulted with all of the parties that would be affected & at worst , a compromise would have been the result. Instead we had the decimation of the small investors hard-earned savings without justification.

Now here we are 3 years later & what do we have to show for the Tax Fairness Plan other than a further erosion of our Canadian identity , loss of tax revenue , & a dollar poor citizenry. The big question becomes , do we have anyone left in Ottawa with the ability & the desire to actually do anything about it.

I am afraid that the last 3 years of inaction about says it all.

Dr Michael Popovich
Rodney Ont

Anonymous said...

Thanks. Seeing the content in this article is a great start to my week. Nice to know the truth is out there.

Anonymous said...


Face It! The Income Tax policy will not change under the present condition! Furthermore, If the Liberals are not elected, then, you are left with Harper and his Cons and the NDP! L0Ts of Luck!


CAITI said...



I understand your point, which essentially is that income trust investors have to be willing to be held to ransom by the Liberals (i.e. vote for them) before the Liberals will act on their behalf.

What kind of deal is that?

Meanwhile we have no hard statements by Ignatieff on HIS income trust policy...or any policy for that matter. So the whole thing amounts to another exercise in “trust me”? No thanks.....these people supposedly work for us?

Meanwhile the income trust policy adversely affects all Canadians, but no politician, Ignatieff included, ahs the integrity to admit that ot to highlight that.

Maybe Ignatieff is happy to see the best companies in Canada get picked off by foreigners?


Anonymous said...

With this Hill Times piece, I assume that our 'income trust group'
will have burned all our bridges to politicians. So be it.

You're quite correct in lumping Ignatieff with all the others.

Any reaction from the mainstream to this article yet?

Anonymous said...

Just the best Brent!!! - Iggy and the Lib's better wake up


Anonymous said...

Great article! I would however, point out that the Liberal policy is to change the Income Trust Tax more to your liking! I know it is frustrating but, unless and until Harper and his Cons are replaced by the Liberals in government, nothing will change! Ignatieff and the Liberals are the only hope!

CAITI said...

Yes, except why do Opposition parties need to get elected in order to be effective? This is like bribery of a sort.

What about making an issue of the income trust issue BEFORE you get elected? There’s a novel thought.

Why are the Liberals burying this issue?

This was the essence of my heated discussion with Goodale back in June. I told him exactly what I wrote in this article, which was......”it is incumbent on you to act NOW, not at a time of your choosing and when you deem it most opportune for you after all, you are our PAID ELECTED members of Parliament.”

How is this financial pandemic caused by the income trust tax any different in terms of their responsibilities and the urgency for action than say, H1N1, for example?

The act of standing by and doing nothing is simply the act of commission.

Where do they get off thinking they can bury their heads in the sand, or is that the EASY way out and Standard Operating Procedures (SOP)?


Dr Mike said...

Good luck to us waiting for the Liberals to be elected!!

They have no momentum other than backwards.

They have no policy other than criticizing the Cons mis-steps.

The trust tax was wrong-headed , not-consulted , & a very poor fiscal move other than for the companies that had the only benefits.

Jim Flaherty & Stephen Harper must foot the primary blame , the media was complicit in accepting the lie , & the opposition was weak to the rescue.

Until our political system has the cob-webs removed & until we develop a form of government that actually will work on behalf of the people , we will be doomed to such crap in lieu of good policy.

Dr Mike

Anonymous said...

Hill Times:

I hope Canadians will take seriously the article "Harper-Layton income trust tax: time to ditch it" by Brent Fullard in today's Hill Times.

It is a shame that our government has made a decision that negatively affects so many people in this country regarding their investments (many for their retirement purposes) without telling us why they did it.

Isn't government elected to serve the needs of the people? Why do approximately 2,500,000 Canadians have to be punished for investing in their country? When I served in the Canadian Army I was willing to give my life for my country.

Is this is how we get rewarded--by taking away our right to a decent return on our investments? Why is it that Korea and some Middle Eastern countries can come here and buy up our trusts (Harvest and Prime West) at much less than what Canadians paid for them and pay little or no taxes? Canadian investors took a big hit in their incomes with those transactions.

I would like to know how such a move will benefit Canada? If there are tax benefits for Canada, would someone please explain them in layman's terms so that the average Canadian tax payer can understand them?

I would very much like to have a government in power that I can honour and respect for doing what is right.

Robert Bertuzzi