Thursday, January 7, 2010

Canada’s 31.5% IPO Tax

Canada is the only country in the world that imposes a tax for the act of a company going public or for the act of company being public.

Why would the act of being public/going public be the basis upon which a tax is levied, especially a tax as massive as a 31.5% tax on everything that a company earns? Especially when the average tax paid on every other company in the land averages less than 6.2%, on an apples to apples comparison basis?

What country would institute tax policies that discourage companies from going public and gaining access to the largest pool of capital out there, namely the public capital markets? Why would any government want to make companies captive to the capital pools known as private equity, and the propensity of private capital to use excesses amounts of debt to lever up their investments, especially in light of the recent hard lessons learned from the Global Financial Meltdown.

It makes no sense whatsoever, but this I what the Harper government has done. Is it any wonder that IPO acrivity in this country has fallen off the cliff. Who in their right mind would want to take a company public, if it meant attracting a massive 31.5% tax. Better to remain private/

But it gets worse. Because this new tax was imposed on companies that already were public. It was a retroactive tax, that penalized those companies that had made the decision to be public. Their only recourse is to go private again to avoid this tax. That creates a classic catch 22. Go private to avoid the tax like other private companies, but suffer the penalty of not having adequate access to capital in order to grow and remain competitive. What country would willingly create these types of dilemmas for businesses. It almost has religious or cult like overtones to it. Almost like a case where legislation had been based upon some one person’s superstitions?

But it gets worse. Not only is there a massively unlevel playing field as between a company that goes public and a company that goes private, there is also a massively unlevel playing field as between those investors who participate in the public market and those that participate in the private market.

This observation provides the clue to understand what is actually going on here. There actually is some method to Jim Flaherty’s madness, not that you are going to like it.

You see, the whole purpose of this new tax was not to penalize companies per se, but rather to penalize investors and to take options away from certain investors, but not others.

The hard reality is that not all investors can participate in the private market, whereas all investors CAN participate in the public market. This is analogous to saying that not all people can belong to a private club, whereass all people can belong to a public club. Why would a government want to turn the act of investing into the equivalent of a private country club?

Perhaps that question is best directed to Jack Layton of the NDP, as without the support of the NDP, this private country club form of advantaged investment would not exist. If Jack Layton starts babbling on about something called tax leakage< I would suggest that you cut the conversation short and simply ask him to produce his proof for such ann unfounded allegation. Jack Layton has no proof for the simple fact that there is no tax leakage. Full stop.

Then you can get to the root of the issue and ask why in the world would any fair minded and fiscally sane government ever insttute a policy that created these gross discrepancies in investment opportuinities as between private investors and public investors? Why kind of democracy of the people would preclude people at large from investing in the country in which they reside and pay taxes, in order to make Canada the exclusive reserve of those who belong to the private country club known as private equity.

So who exactly is private equity? To answer this question, one merely has to look at the very people who have been involved in the transactions to date that have occurred in the income trusts market. These transactions to date are nothing more than money laundering operations. A more accurate term would be tax laundering operations, since all of these transactions have involved the sale of income trusts from Party A to Party B, such that Party A would have otherwise paid the 31.5% tax, whereas Party B will not.

Like the policy itself this makes no sense whatsoever. What country in this world taxes the same object in one person’s hands at 31.% and in the other person’s hands at 0%? It would be conceivable that a country that wanted to adopt protectionist measures that discriminated against foreign investors might want to creat such an unfair and unlevel playing field, but that does not explain what is going on here, since this 31.5% tax applies to Canadian taxpaying citizens. So who are these Party B’s who have been handed this huge tax advantage to the detriment of the average Canadians taxpaying investors. Once again, we simple need to look at the acquisitions of income trust that have occurred to date.

In all of the following instances, the private buyers in question will continue to own these businesses as income trusts and WILL NOT be subject to Flaherty’s 31.5% tax, whereas average Canadian investors would have been. This is Flaherty’s idea of leveling the playing field and these are the direct beneficiaries of Flaherty’s largesse (courtesy of Jack Layton and the NDP):

Sleep Country Canada Income Trust:
Thomson Family Private Holding Company (Canada’s wealthiest family, and controlling shareholders of the Globe and Mail and CTVGlobemedia, who are constant promulgators of the falsehood known as tax leakage)

Teranet Income Trust: Ontario Municipal Employees Retirement Fund (OMERs)

Prime West Energy Income Fund: Abu Dhabi Energy Company (state-owned entity)

TransAlta Power Income Fund:
Li Ka Shing (Hong Kong billionaire)

Harvest Energy Income Trust: Korean National Oil Company (state-owned entity)

Thunder Energy Income Fund: Public Sector Pension Plan (pension plan for federal civil servants including people like Mark Carney and all the others in the DoF who concocted this crazy scheme, and who are its intended beneficiaries)

Legacy Hotel Income Fund:
Caisse (today run by Michael Sabia who was instrumental to Jim Flaherty in bringing about the income trust tax and maneuvered for that outcome while the CEO of BCE)

Precision Drilling Income Fund:
Goldman Sachs (former alma mater of Mark Carney who was the architect of the income trust tax and the very tax loophole that we are discussing in this article)

....and the list goes on.

This is grossly unfair on the one hand, and does nothing to address Jim Flaherty’s alleged problem with income trusts on the other hand, as changing their owners will do NOTHING to deal with his alleged concerns about income trusts. Nothing!

Meanwhile there is the issue of the $35 billion of investment value that was lost by the 2.5 Canadians who owned these trusts on that fateful Halloween of 2006. To them, that money has been permanently lost, never to be recovered, unless this absurd tax is repealed before it comes into effect in a year’s time. However that money has not been lost to the overall “system”. Flaherty’s policy created a system, where the money that would be lost by Party A,namely average Canadians investors, would simple be recouped by any Party B that would be willing to take these income trusts private. Bingo, you win part of the $35 billion prize.

Therefore, this income trust tax is one of the most corrupt and incompetent policies this country has ever witness and the most corrupt and incompetent policies this side of the privatization of Russian state owned companies in the 1990’s that Mark Carney while at Goldman Sachs adviced the Russina government on, and that minted dozens of billionaires overnight, now known as Russia’s Oligarchs. Apart from being fabulously wealthy, these Oilgarchs basically run the country.

So this is what Canada has now devolved into. A mini-make of the Russian oligarchy, where average Canadians get raped overnight by the Harper government to the tune of $35 billion in order to enrich a bunch of Stephen Harper’s cronies and bunch of government run pension funds, including the very pension fund of the buraeucrats who concocted this corrupt scheme of self dealing in the first place.

I for one won’t stand for it, nor will I stand for the lies about this policy that are constantly printed in the Globe and Mail and other organs of the Canadian Oligarchs who own.

Meanwhile were is Canada’s Official Opposition on this total rip off in the making? Are they a Party of the people or a party of the Oligarchs? Meanwhile Jack Layton along with Gilles Duceppe have a lot of explaining to do.

Prove the case or drop the tax. This kind of massive corruption can not stand. I refuse to be lied to by the Canadian government as the basis upon which they are expropriating my assets in order to hand them to their privileged class friends, who are happy to sit back and effectively steal my wealth on false pretenses. This is gross discrimination of both an economic and social kind. It is also blatant theft and fraudulent.

What else did you expect from a band of thugs like Harper/Flaherty? Tommy Douglas they are not. Meanwhile where is Jack Layton and Michael Ignatieff in all of this? They stand idly by while this con game continues, In California that would be considered an offence in its own right, the act of idly standing by while others are getting raped. It is called the Good Samaritan Law. However the Good Samaritan Law was never intended to get politicians to do what they are PAID and ELECTED to do. Apparently Canada needs a Good Samaritan Law of its own, One that applies to elected officials like Ignatieff and Layton, along with the lesser citizens that we have all become.

So what say you Micahael Ignatieff and Jack Layton? Where is your opposition to this daytime rape that is occurring before your very eyes, or is this your respective parties’ idea of pension reform? Steal from the poor and give to the rich.


Dr Mike said...

The big problem with politics today & it`s infected politicians , is the politician`s undying loyalty to the party first & to big business second.

Being third in line makes us eager for the crumbs as the whole slices are already spoken-for.

I am tired of settling for these crumbs.

I worked heard for my money & almost died making it , then guys like Flaherty come along after making a solemn promise , & then just transfer it to big business.

Cheeses me off to no end & I still refuse to lay down & play dead , esp when these people were absolutely wrong.

This gov`t ran on a policy book of transparency , accountability & a promise to protect the small investor from the Liberal trust taxing hordes.

They were neither transparent or accountable & they turned-out to be the real trust taxing hordes..

Shame on them & shame on us for putting-up with this CRAP.

Dr Mike Popovich

Anonymous said...

Brilliant, lucid explanation Brent. Thank you.

I'm not sure that "Happy New Year" Is appropriate, but want to wish you
and your loved one's everything of the very Best for 2010.
May much Contentment, Love Good Health & prosperity be yours!

With kindest regards,

Allan said...

Very informative and valuable tax information.

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