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CANADIAN Politics And Investing ( F. TOITS)
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Re: I am furious ! ! BNN Blog: Trust yourself?Kane on Income Trusts I am truly astounded that Michael Kane would write such a comment. His facts are wrong. Bell Canada was not going to pay any material amount of income tax in forthcoming years. Bell said so in a press communique issued in mid-December 2006 shortly after the Flaherty announcement. Telus made a similar announcement. Second, the vast majority of corporations do not pay the statutory corporate income tax rate. Their effective tax rates are often a fraction of the statutory rate. This is particularly true of corporations operating in the resource sectors. In the Canadian Income Tax Act there is about 140 pages of measures by which corporations can reduce their taxes. In the 2008 annual report I just receive from the Bank of Montreal it is written on page 143 that the effective tax rate of the bank was 7.9% in 2007 and minus (yes MINUS) 3.6% in 2008. They will get a tax refund. Third, Mr Kane should know that while income trusts don't pay tax themselves their unit holders pay tax on distributions received in non-tax deferred accounts at rates that typically exceed the (diminishing) corporate statutory rate. These individual taxpayers pay on average 38% of their income in tax (federal and provincial) and up to 46% for those in the highest maginal tax bracket. Put briefly, the government collects more taxes from such investors receiving trust distributions that it would if trusts were to convert to corporations. Fourth, as regards tax-deferred accounts such as RRSP and RRIF. These are tax-deferred account and not tax-exempt accounts as they are frequently referred to falsely. It is wrong to refer to these accounts as being tax-exempt since they are not. The Income Tax Act is very clear in this respect. All taxes are paid when the money held in these accounts is withdrawn. Moreover, holders of these accounts are arbitrarily denied the dividend tax credit and are consequently fully doubled taxed on all dividends received in their accounts. This is most unfair but the Minister of Finance never talks about that. People who will be holding income trust units in their RRSP/RRIF after 2011 will be doubled taxed very heavily and most unfairly : once when the trusts will be forced to pay the STATUTORY tax rate and then again at 38% or 46% for a total tax rate of over 60% in many cases. What Mr. Flaherty has done is to extend the grossly unfair double taxation of dividends to trusts distributions. As it becomes totally non-profitable to hold income trust units in RRSP/RRIF the amount of taxes collected by the government from these accounts will fall substantially as these investors will be forced to invest in low yield intruments, have much lower investment income, and pay much less tax. Fifth, income trusts that have been acquired in leveraged buyouts since the Flaherty announcement pay virtually no income tax in Canada. All interest payments to foreign investors and equity funds flow out of Canada tax free, thanks to the elimination of the withholding tax on such payments by Mr. Flaherty. Moreover, when trusts revert to corporate model they will most likely pay very little tax as their effective tax rates will often be very low especially in the case of the oil and gas trusts. It is interesting to note that corporations operating in the oil patch and their shareholders were typically paying much less income tax than after they converted to the income trust model. In conclusion, contrary to what Mr Kane opines the demise of the income trust will result in a significant loss of tax revenue for the government. Yves L. Fortin 5801 Rideau Valley Drive Ottawa, ON |
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Msg # | Subject | Author | Recs | Date Posted |
22927 | Re: I am furious ! ! BNN Blog: Yves L. Fortin | Firesole2 | 3 | 2/4/2009 12:48:53 PM |
22938 | Re: I am furious ! ! BNN Blog: Trust yourself? ~ ITGIRL | Sunstone | 2 | 2/4/2009 2:51:54 PM |