For Immediate Release: January 30, 2007
Canadian Association of Income Funds (CAIF) Rejects Government Tax Leakage Claims
OTTAWA – In an appearance before the House of Commons Finance Committee, George Kesteven, President of the Canadian Association of Income Funds (CAIF), rejected the government’s claim that it was forced to tax income trusts in order to stem tax leakage, and criticized Prime Minister Stephen Harper for breaking a key election promise and taxing income trusts without consulting industry or the public.
“The Prime Minister repeatedly promised never to ‘raid seniors’ hard-earned assets,’ yet that is exactly what Mr. Harper’s government has done – moving arbitrarily and without consultation to tax the distribution payments of income trusts for millions of investors,” said Mr. Kesteven, adding “The government has caused a multi-billion dollar meltdown of investor savings and sounded the death knell on this sector.”
Calling the government’s tax leakage estimates “flawed,” Mr. Kesteven rejected the Finance Department’s claim that it was losing $500 million a year in taxes as a result of corporations converting to the income trust structure. Mr. Kesteven said the government’s tax leakage figures have been “grossly exaggerated.”
“To date, no clear, credible, or consistent data has been released by the Department of Finance to prove its claim,” Mr. Kesteven told the committee members. “And when information was requested through Access to Information to substantiate the numbers, Department of Finance officials provided blank page after blank page.”
Mr. Kesteven cited a report from HLB Decision Economics, an independent third-party consulting firm, which concluded there is no federal tax leakage due to the existence of trusts. Mr. Kesteven noted that the HLB study found federal tax revenues generated from income trusts are higher than tax revenues that would be generated were these organizations structured as corporations. He also stressed that there have been many credible experts in recent months whose data refutes the premise of tax leakage.
“The reality is that there is no tax leakage,” said Mr. Kesteven.
Stating that the government used “a chainsaw instead of a scalpel” on the income trust sector, Mr. Kesteven went on to outline the damage that has been caused to the savings of Canadian investors. He also highlighted some of the negative consequences for companies structured as income trusts, including a lack of access to capital, depressed valuations and the threat of becoming takeover targets.
Mr. Kesteven noted that the vast majority of income trusts are small and medium-sized businesses. To emphasize his point, Mr. Kesteven cited the example of PrimeWest Energy Trust, where he works as manager of investor relations. At the time of its 1996 initial public offering, PrimeWest was a medium-sized business valued at $250 million. However, the company has since grown to a value of $2.2 billion. “The Income Trust structure is unique; it allows small and medium companies to prosper and contribute to the national economy, and it fosters entrepreneurialism,” he said.
Mr. Kesteven asked the Finance Committee to recommend that the government engage in a process of consultations on the substance of its tax policy, and consider alternative approaches that will allow the income trust industry to survive, such as grandfathering, extended phase-in, ring-fencing and exemptions.
“If implemented through the present draft legislation, the government’s policy will destroy the income trust structure and the income potential it represents for millions of Canadian investors,” said Mr. Kesteven.
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For more information, please contact:
Brenda Paul-Ishikawa
Director of Communications
Canadian Association of Income Funds
416-469-0188 (direct)
416-420-4538 (cell)
E-mail: communications@caif.ca