Tuesday, November 13, 2007

CRA Form T1032 codifies Harper's two tiered pension system

Lest you think terms "tax fairness" or "leveling the playing field" are lofty concepts that Stephen Harper actually believes in, as opposed to arbitrary and whimsical concepts that he trots out when it serves his purposes, you need to take a look at the CRA Form 1032 issued in October 2007 on the matter of income splitting for seniors. Here are the words on Form T1032 (see attached) that exclude the 75% of Canadians who do not have pensions, unlike MPs, Senators and Civil Servants:

"Exclude from the amount at line A of this form any RRIF, RRSP or other annuity payments received by your spouse or common-law partner (other than amounts received due to the death of his or her spouse or common-law partner). (1) "

Form 1032 is the form used for the 14% of Seniors who will benefit from income splitting.

Income splitting has a cash value of up to $12,000 per year in tax savings. There are however, two prerequisites to enjoy this massive tax benefit. You have to have a spouse or common law partner, and you need to have pension income. This automatically excludes 75% of Canadians. RRSP and RRIF income is explicitly excluded.

How can this measure possibly be contained in a piece of legislation entitled The Tax Fairness Plan?

This income splitting measure was held by the CONservatives to have been a form of mitigation to the income trust tax. How completely absurd, since the income trust tax is specifically targeted at the 75% of Canadians who don't have pensions, whereas the PREREQUISITE for income splitting is that an individual have pension income. RRSP/RRIF income is explicitly excluded.

This is just another example of how Stephen Harper is creating a two tiered pensions system in Canada. These are four main measures to bring Harper's grossly discriminatory two tiered pension system into effect:

(1) Income splitting only applies to 25% of Canadians with pension income (only half of whom have an eligible spouse), excludes the 75% without pension income. Measure benefits all MPs, Senators and Civil Servants.

(2) Pension plans can own income trusts in private form, free of the 31.5% income trust tax. RRSPs are double taxed.

(3) Pension plans are free of growth restrictions.

(4) Alleged tax leakage, is permissible if incomes trust are held by a pension plan.
The pension plans are laughing all the way to the bank. No doubt they were consulted on this beforehand by the Harper government. Otherwise, how could pension plans like Teachers have come out with statements like this on November 1, 2006:

Teachers' response to new federal income trust policy
November 1, 2006

The Ontario Teachers’ Pension Plan has advocated for a taxation policy on income trusts that does not discriminate against pension funds, and we are pleased to see that this is the case with the government’s announcement yesterday (October 31, 2006).

The reality is that, in a protracted period of low interest rates, it is important to find alternate investments with yields that help make up the difference. Income trusts have allowed us to do that in recent years. The challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them. The four-year implementation period for this new policy will enable us to gradually make any necessary adjustments to our portfolio.

There is good news for pensioners and other seniors over age 65 in this new policy, which will help take the sting out of the new tax policy on income trusts for them: the age exemption tax credit will be increased by $1,000 and income splitting will be permitted.


Deborah Allan
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
(416) 730-5347