Canadian tax-exempt investors, such as Canadian pensions and RRSPs, are subject to tax neither on Flow-Through Entity income nor on dividend income. Jim Flaherty, October 31 2006
"The purpose of the pension funds, ultimately, is to ensure they can honour their pension obligations. And there is taxation, of course, when pensions are paid out," Jim Flaherty, July 4 2007
No wonder the Conservatives think there is tax leakage - they left out almost half of the taxes!
The term tax leakage is used to describe a situation in which it is believed that the Government of Canada collects fewer taxes from one form of business ownership structure relative to another form of business ownership structure. Many who oppose the income trust form of business ownership would like Canadians to believe that Income Trusts cause tax leakage when compared to corporations.
Tax leakage has to be determined by looking at the taxes paid not just by the business itself but also the taxes paid by its owners on the distributions/dividends paid from the business to its owners (shareholders/unitholders).
On this basis income trusts do not cause tax leakage, rather it is the Department of Finance's analysis (which to date our Minister of Finance refuses to release to his fellow MP's or Canadians) that causes tax leakage, since this analysis completely ignores 31% of the good when it performs its good/bad analysis of Income Trusts relative to Corporations.
The Department of Finance does not include the taxes (retirement taxes) that it receives on the 31% of Income Trusts that are held in retirement accounts (RRSPs and the like) in the false treatment of retirement accounts as being "tax exempt" Charities and not-for-profits are "tax exempt" , retirement accounts and RRSPs clearly are not "tax exempt".
All withdrawals from retirement accounts are taxed at the highest marginal rate of personal taxation, just like income from employment. In fact retirement income is the second largest source of personal income taxed by the Government, second only to income from employment. During 2004, the most recent year for which data is available, Canadians paid $9 billion in retirement taxes on $52 billion of retirement income. Retirement taxes are not tax exempt, but rather they are tax deferred. When comparing income trusts to corporations in its analysis, the Department of Finance is not even "internally consistent" in its treatment of deferred taxes. The deferred taxes paid by income trusts held in retirement accounts are totally ignored, whereas the deferred taxes paid by corporations are included.
This profound analytical bias by the Minister of Finance and the Department of Finance causes tax leakage. Income trusts do not cause tax leakage.
Finance Minister Flaherty needs to justify his actions. Tax leakage is a discernable fact. Canadians need facts not fiction. MPs need facts not fiction, before voting Flaherty's so called "Tax Fairness Plan" into law. If there is no tax leakage why are we doing this?
Canadians will lose an important investment choice for both today and the future. Canadians have sustained a loss in their hard earned savings of $35 billion as a sole consequence of Mr. Flaherty's actions. This is profoundly wrong. This can not be justified. Source: caiti.info
Simple to the extreme
To: Finance Minister Flaherty, Your Tax Leakage Analysis is Fraudulent