Flaherty's Mini Budget: What became of leveling the playing field?

John McCallum asks a question of the Harper government

Q-1492 — November 29, 2007 — Mr. McCallum (Markham—Unionville) — With regard to the tax on income trusts announced on 31 October 2006, using the same model that was used to calculate the government’s estimates of tax leakage described by the Minister of Finance during his appearance at the Standing Committee on Finance on January 30, 2007, what would the government’s estimates of tax leakage have been if the corporate tax rate had been 15% rather than 21% as they were in 2007?

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Trusts Redux: Tax Policy Suitable for Halloween

As an economist I welcome Minister Flaherty’s October 30 announced intention to boost Canadian productivity and prosperity by reducing the general federal corporate income tax rate to 15 per cent by 2012. The measure should be embraced by all: It will position Canada favorably in the global economy for decades to come. But while I laud the strategic direction on corporate taxes, I continue to question the government’s consistency on tax policy in general.

A year ago today the Minister announced in his Tax Fairness Plan his intention to “restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations,” to eliminate tax leakage and to remove distortions in investment decisions. To paraphrase the Department of Finance’s analysis, the avoidance of corporate taxes from entities after conversion to an income trust is not totally offset by the taxes paid on income trust distributions from individual unit-holders; therefore tax leakage. The Minister estimated that annual tax leakage was in the order of $500 million and stated that something had to be done “to restore balance and fairness in the tax system”. The Minister’s solution to create “tax fairness” and eliminate tax leakage was to implement a 31.5% Distribution Tax on trusts in 2011 and to not allow any new conversions to the income trust form. The market response to the “Tax Fairness Plan” announcement was very negative.

Having worked for the income trust industry and with the Department of Finance on determining the appropriate methodologies for tax leakage, I presented evidence on the tax leakage issue to the Parliamentary Standing Committee studying the issue. To be precise, I raised several concerns with the Department of Finance approach – all of which went to a “sharp over-statement” of tax leakage. The major flaw in the Department of Finance analysis was that it did not take a lifecycle view of the tax leakage issue but rather focused on a 2006 “test year”. By failing to account for the reality that corporate tax rates were legislated to be reduced to 19 percent by 2011, the Department took a short-sighted and punitive approach to the issue. Despite the debate and a dissenting Committee Report “Taxing Income Trusts: Reconcilable or Irreconcilable Differences”, the income trust provisions of the Tax Fairness Plan remain in place.

It is regrettable that the October 30 announcement did not occur a year ago. It would have all but eliminated the perceived tax leakage issue without the punitive distribution tax on income trusts. In fact, the Department of Finance’s own Tax Leakage Model would have given an estimate of merely $80 million in tax leakage when accounting for yesterday’s corporate tax cuts instead of the $500 million stated by the Minister at the time. The Department’s own analysis would not have supported a tax on income trust distributions. If the October 30 announcement had been made last Halloween, the billions lost by investors would not have occurred and the playing field would have been leveled by 2011 – all this according to Department of Finance methods of analysis. These losses cannot be recovered and one has to question the path that led us to this point and Finance’s tax policy strategy.

I believe that even the $80 million estimate sharply overstates the leakage. This aside, yesterday’s corporate tax cuts would now allow the abolishment of the income trust distribution tax all together without incurring federal tax leakage – this, again, according to the Department of Finance’s own model.

Dennis Bruce is Vice President with HDR Decision Economics and has studied the income trust tax leakage issue since 2003. He twice testified before the House of Commons Finance Committee on the question Income Trust tax leakage.

Dennis Bruce
Vice President
HDR | HLB Decision Economics Inc.
1525 Carling Avenue, Suite 500
Ottawa, Ontario
Tel: 613-234-0080
Cell: 709-632-1708

HDR - ONE COMPANY | Many Solutions ™

The NDP are basing their income trust tax policy on someone described by the courts as "frivolous and vexatious"

By Brent Fullard

The NDP are clearly lacking in research capabilities of their own, That was proved abundantly obvious when Judy Wasylycia-Leis made a claim in Parliament on May 10, 2007 that CAITI had had donated $282,000 since 1993 to the Liberal party and $53,700 to Liberal leadership contenders in 2006. Not only does CAITI have a strict policy against making any political donations, direct or directly, at the time of this claim, CAITI had only existed for less than 4 months. That didn’t stop former used car salesman and Conservative MP Dean Del Mastro from parroting the same claims five minutes later.

Now we know how false claims like tax leakage get started and how others are quick to blindly jump on the band wagon. Emphasis on the word “blind”. Much like the press in Canada.

Another example of the NDP’s ineptitude at research occurred at the NDP gathering I attended on the subject of the SPP (Security and Prosperity Partnership) on November 24. The NDP’s depth of knowledge on this subject by their “in house expert on the SPP, Peter Julian, could easily be superseded by spending 2 hours of googling SPP and listening to Lou Dobbs on CNN . Peter Julian admitted that the NDP are still in the process of putting the SPP puzzle together and would welcome receiving information from people in the audience.

This form of trolling for information obviously makes the NDP susceptible to people like Diane Urquhart, the self professed “independent analyst”, as they are happy to “out source” their research on virtually any fact based topic. Not sure what “independent analyst” means, as Diane states she has no clients. If that’s the case, then she is only representing herself as an individual investor.

I do know, however that the NDP have bought Diane’s arguments about income trusts, hook, line and sinker. Diane also seems to get a lot of press lineage for someone who has a questionable credentials. The NDP are so fond of Diane Urquhart, that they saw to it that she testified no less than three times before the Finance Committee on the matter of income trusts. I am only aware of one other person who testified more than once, and that was Dennis Bruce who testified twice. He however, as Vice President with HLB Decision Economics, was the only person who worked with the Department of Finance to create with them the tax leakage model and published the definitive study that lays to shame the false allegations of tax leakage entitled Tax Revenue Implications of Income Trusts.

Meanwhile the NDP are in bed with the “frivolous and vexatious Diane Urquhart”. At least according to the courts. So too it seems are the Conservatives

Here was the glowing introduction afforded Diane Urquhart by Mr. Dean Del Mastro (Peterborough, CPC):

"Mrs. Urquhart, I'm just reviewing your resumé a little bit. You've got quite of bit of experience in relation to investment and you are certainly a professional witness before this committee. I appreciate your being here.”

It is clear from Diane’s resume that she has engaged in resume inflation and resume puffery. Despite what her resume says, at no point was Diane Urquhart the Managing Director of Equities Research and Institutional Equities at Burns Fry Limited, since during Diane’s time at Burns Fry, which ended in 2004, the title of Managing Director did not exist at the firm. No one had such a title. Nor did Diane “Co-lead the daily operations of 175 research, sales and trading personnel” at Burns Fry. Such a construct did not exist, as Diane had no responsibility for the institutional Sales and Trading personnel at Burns Fry. I can assure you, since I also worked at Burns Fry from 1991 to 2002, that if she did, they all would have quit. The individual responsible for that function was Barry Cooper. Diane reported to him as the manager of the Research Department. I have confirmed this with other people at Burns Fry who were there at the time and who were very aware of what Diane did and did not do. Diane obviously harbored desires to be the Head of Research, Sales and Trading and launched at the time what can only be best described as a “coup” against Barry Cooper that failed miserably. She left shortly thereafter.

Diane also describes on her resume that after leaving Scotia Capital Markets in 1998 that she was for the period from 1999 to 2001 a Venture capital investor in iTCANADA.com, an internet services consolidator that was sold to Technovision Systems Inc. in December 2000.

Diane however fails to describe how she went on to lose about all of her $1.19 million investment in Technovision that she received in exchange for her 25% ownership of ITCANADA.com and sought to recover her failed investment in actions she brought in the BC and Ontario courts and involving the securities commissions in BC and Ontario. The details are available at the Ontario Securities Commission

The details of these legal proceedings are not very flattering of Diane Urquhart as an investor or of her business acumen. Why the NDP are relying on her views on income trust only goes to discredit the NDP’s own credibility.

The Ontario Court ruled:

• “We find that this section 104 application on behalf of the Applicants is out of time and frivolous and vexatious, and in the words of the Honourable Justice Pitt, "this is precisely the kind of proceeding that motions judges are obliged to stay or dismiss on grounds of res judicata, issue estoppel, abuse of process and on the ground that they are frivolous and vexatious."

• This is a private dispute and should be resolved in the civil courts. Failure to succeed in the civil court should not be the basis for an application to the Commission to change a private dispute into a matter of public interest.

• The application of Urquhart is therefore dismissed.”

Related:
The NDP are needlessly setting themselves up
Tax Revenue Implications of Income Trusts

Should Jack Mintz testify at Ethics Committee hearings?

Who knows how much of a crook Brian Mulroney will turn out to actually be. I am vastly more interested in the blatantly fraudulent ways of our current Prime Minister in doing the bidding of Corporate Canada’s Controlling Elite (CCCE) on the matter of income trusts.

It’s time for an Ethics Committee Hearing on Alleged Tax Leakage.

Here would be a good starting point. Namely Jack Mintz comments on validity of Stephen Harper’s methodology for alleged tax leakage;

“I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero”

All of which begs the question, what is the correct tax leakage? Here is an Op Ed written by Dennis Bruce that neither the Globe and Mail nor the National Post saw fit to publish. What are they afraid of apart from the truth? The very fact that the press are suppressing the truth behind this policy, is what profoundly requires a Hearing by the Standing Committee on Access to Information, Privacy and Ethics. The CBC already has their hands full uncovering these scandals the press ate happy to ignore.

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Trusts Redux: Tax Policy Suitable for Halloween
October 31, 2007

As an economist I welcome Minister Flaherty’s October 30 announced intention to boost Canadian productivity and prosperity by reducing the general federal corporate income tax rate to 15 per cent by 2012. The measure should be embraced by all: It will position Canada favorably in the global economy for decades to come. But while I laud the strategic direction on corporate taxes, I continue to question the government’s consistency on tax policy in general.

A year ago today the Minister announced in his Tax Fairness Plan his intention to “restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations,” to eliminate tax leakage and to remove distortions in investment decisions. To paraphrase the Department of Finance’s analysis, the avoidance of corporate taxes from entities after conversion to an income trust is not totally offset by the taxes paid on income trust distributions from individual unit-holders; therefore tax leakage. The Minister estimated that annual tax leakage was in the order of $500 million and stated that something had to be done “to restore balance and fairness in the tax system”. The Minister’s solution to create “tax fairness” and eliminate tax leakage was to implement a 31.5% Distribution Tax on trusts in 2011 and to not allow any new conversions to the income trust form. The market response to the “Tax Fairness Plan” announcement was very negative.

Having worked for the income trust industry and with the Department of Finance on determining the appropriate methodologies for tax leakage, I presented evidence on the tax leakage issue to the Parliamentary Standing Committee studying the issue. To be precise, I raised several concerns with the Department of Finance approach – all of which went to a “sharp over-statement” of tax leakage. The major flaw in the Department of Finance analysis was that it did not take a lifecycle view of the tax leakage issue but rather focused on a 2006 “test year”. By failing to account for the reality that corporate tax rates were legislated to be reduced to 19 percent by 2011, the Department took a short-sighted and punitive approach to the issue. Despite the debate and a dissenting Committee Report “Taxing Income Trusts: Reconcilable or Irreconcilable Differences”, the income trust provisions of the Tax Fairness Plan remain in place.

It is regrettable that the October 30 announcement did not occur a year ago. It would have all but eliminated the perceived tax leakage issue without the punitive distribution tax on income trusts. In fact, the Department of Finance’s own Tax Leakage Model would have given an estimate of merely $80 million in tax leakage when accounting for yesterday’s corporate tax cuts instead of the $500 million stated by the Minister at the time. The Department’s own analysis would not have supported a tax on income trust distributions. If the October 30 announcement had been made last Halloween, the billions lost by investors would not have occurred and the playing field would have been leveled by 2011 – all this according to Department of Finance methods of analysis. These losses cannot be recovered and one has to question the path that led us to this point and Finance’s tax policy strategy.

I believe that even the $80 million estimate sharply overstates the leakage. This aside, yesterday’s corporate tax cuts would now allow the abolishment of the income trust distribution tax all together without incurring federal tax leakage – this, again, according to the Department of Finance’s own model.

Dennis Bruce is Vice President with HDR Decision Economics and has studied the income trust tax leakage issue since 2003. He twice testified before the House of Commons Finance Committee on the question Income Trust tax leakage.

Dennis Bruce
Vice President
HDR | HLB Decision Economics Inc.
1525 Carling Avenue, Suite 500
Ottawa, Ontario
Tel: 613-234-0080 Cell: 709-632-1708

HDR - ONE COMPANY | Many Solutions ™