There are at least 10 reports from economists and experts in the field disputing that there is any tax revenue loss caused by income trusts (tax leakage) in fact these report show the opposite and also put to rest the idea that trusts are some how bad for the economy.
On the other hand you would think the government would be eager with such an unpopular measure to prove its case, so far we have no figures just 18 pages of blacked out information which the government later asked to have back, apparently it reveled too much.
There is an old government report which was largely discredited and ignored by the Liberals its points are dealt with in the HDR Economics report. The government is not admitting to using this report but from its comments it seams very likely. It may also be using a report by Jack Mintz, the author has complained he is being taken out of context and objected to the new tax.
The really sad thing about this whole mess is that we shouldn't have to guess where the government is getting its (miss) information from, this was supposed to be a new accountable government
BMO Real World Tax Leakage Analysis Excel document, perhaps the most important real world analysis of tax leakage a summary can be found here jpeg copy
Bruce Dennis op-ed regarding the 0ctober 2007 reduction in corporate tax rate and income trusts
RBC - Deep Dive Into Tax Issues January 2007
BMO - Digging Deeper A look at American Income Trusts called MLPs
Income trust buyouts: Lots of activity, little tax revenue Deloitte & Touche December 2007
BMO Report The Inconvient Truth about Income Trusts
RBC Aesop's Warning Ignored A brief commentary regarding tax revenue loss
Coalition of Energy Trusts Report December 2006
Tait Report December 2006
Recipe for a Tax Revenue Loss
Fortin Jan 2007
Fortin Report November 2006
RBC Report
PWC Report December 2006
HDR Report November 2005
Cannacord Report November 2006
Income Trusts are Efficient at investing (PricewaterhouseCooper) this report puts to rest the argument that trusts don't invest in capital equipment ,research and innovation.
Income Trusts and the National Economy HDR Economics April 2006
Available report summaries
Cannacord Report
Summary
This is an appropriate time for study to gain insight and understanding. Now
that we have a firm proposal, let’s study the issues and find better
alternatives. Hasty legislation is not the way to “stand up for Canada.”
We believe the proposed legislation has far more negative implications for
Canada and Canadians than the government recognizes, particularly on the energy
industry. Good government policy is far more likely to result when there is
proper consultation. Concerned Canadians should call their MPs and tell them to
put the brakes on the legislation in favour of proper consultation.
Canada has a history of successfully using monetary and tax policy to achieve
results that are consistent with national objectives. Certainly, in today’s
world, one of the most important objectives should be a vibrant, Canadian-owned
energy industry.
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Coalition of Energy Trusts Report
Report Summary
Canadian energy trusts are an integral component of the Canadian oil and gas
industry with a twenty year history of operations in the WCSB and a significant
investment vehicle for Canadians in all provinces. The government’s proposed
change in the tax treatment of energy trusts effective January 1, 2011 will
effectively abolish this sector despite:
- No firm evidence that tax leakage is occurring from the energy trusts;
- Strong evidence that government tax revenues are being enhanced by energy
trusts;
- Irrefutable evidence that the energy trust sector has demonstrated enhanced
productivity when managing mature assets;
- A more suitable business model for the mid-cap sector of a rapidly maturing
sedimentary basin;
- Repatriation of $10 billion in previously foreign controlled assets by the
trust sector;
- Competition in a continental industry modeled after Canadian energy trusts
which have already acquired Canadian assets;
- Providing access to western Canadian resource revenue to individuals and
governments across Canada; and
- Trusts being the primary entities looking to materially reduce Canada’s GHG
emissions through CO2 enhanced oil recovery and sequestration projects.
Energy trusts are different from other trusts by virtue of their very high
reinvestment requirements and their role in maintaining Canadian oil and gas
production. The proposed changes will have many unintended effects, including
the diminution of Canada’s energy supply. Exempting energy trusts from the
proposed tax changes is the only sensible course of action for this government.
Failure to do so will be counter-productive to the government’s own stated
reasons for acting.
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Fortin Report
Summary
The issue of the alleged tax leakage is complex and the possible solutions are
few and fraught with a broad range of difficulties. An examination of the
question must take all relevant factors into consideration and be done in a
dynamic and long-term framework, particularly with regards to the main suspects,
namely the tax-deferred retirement plans.
The crux of the matter is whether there is a difference between the present
value of future taxes on RIF withdrawals and pension fund benefits and the
foregone revenues at the present time due to the tax-deferred nature of these
plans. Without an in-depth and comprehensive study of this question it is not
possible to draw any kind of firm conclusion useable for policy purposes. In
light of the factors and considerations outlined in Part V above, there may well
be no difference or even a positive difference. If this were the case this would
mean that there is no tax leakage or that trusts have a positive impact on
government tax revenues.
If, on the other hand, the study showed in a satisfactory manner that there is
leakage, the government would have almost no workable policy options to
eliminate it apart from taking new measures to level further the playing field
between corporations and trusts. The general tax policy trend of the government
in recent years has been to reduce corporate and other taxes and not the
reverse. Further, reduction of corporate taxes, an amplification of the
preferential tax treatment of dividends and capital gains, and a reform of the
taxation of retirement benefits would do much to level the playing field.
Attempts to level the playing field through tax cuts specifically tailored to
address the alleged tax leakage could end up being very costly. That cost might
well be higher than the alleged tax leakage. This means that the real
justification for further corporate and other tax cuts would be to improve the
overall competitiveness of the Canadian economy and encourage a higher level of
saving and investment to sustain and promote growth and development. In our
view, these objectives constitute the real challenge for Canada in an
increasingly competitive world.
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RBC Report
Summary
What is the REAL Issue? Specifics Needed. When asked by investors what it is the
Department of Finance does not like about the trusts, we cannot specifically
answer this question. It cannot be the taxable Canadian investor; they are
indifferent on an after-tax basis as a result of the trust tax proposals. It
therefore must be either the Canadian Pension investors (who effectively will be
subject to double taxation with the trust tax proposals) or the foreign
investors. It could even be the jaded view that trusts worked at counter
purposes to long-term Canadian productivity. (A view we vehemently oppose.).
Whatever the REAL issue, what really drove the Federal Government to lower the
boom on the trust sector, remains somewhat obscure. The Luddites are determined
to delete trusts (with the exception of certain REITs) from the Canadian
landscape – and as Canadians, we are allowing this. And we are letting them off
the hook without a clear understanding as to why, and without properly verified
evidence? It is a case of “father knows best”. Sometimes Dad is wrong, but he is
not accountable. And sometimes Dad changes his mind without a proper
explanation.
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BMO Report The Inconvient Truth about Income Trusts
Summary
Where to From Here? We recognize there was a need to prevent or slow down the
rate of conversions. It would likely be no more beneficial to the economy to
have too many trusts than the old system—with no income trusts. We believe a
system that allows for both should be an objective. Currently, income trusts
comprise approximately 10% of the S&P/TSXIndex. That means that 90%of the
companies listed on the exchange are not structured as trusts and actively seek
above average growth.
The measures proposed by the minister on October 31, 2006, we believe would
effectively level the playing field and stop trust conversions, without having
to double tax trusts held inside retirement accounts. In that respect the
measures go too far. The proposed taxes ensure that individuals will pay taxes
on trusts at the highest rates of tax in Canada, while taxes on trusts held by
non-residents will exceed taxes on any other kind of investment held by a
non-resident by a wide margin. If needed, a conversion tax, or some other
mechanism, could be temporarily introduced, then scaled back until the proposed
annual tax cuts to corporate income and dividends fully eliminate any tax
disparity. Royalty and income trusts have an important role to play in Canadian
capital
markets. We believe there are likely many policy alternatives to the current
proposal that would provide a better solution for the government, business and
for all Canadians who rely on equity income vehicles for retirement income.
We also believe it is important that our policy makers—the elected MPs—are in
full possession of all the facts, cited by the Minister of Finance. They need to
make an effort to understand all sides of this debate and consider other policy
alternatives before they are asked to cast their votes. The inconvenient truth
is that poor policy choices result when elected representatives unconditionally
accept facts and arguments presented in support of one side of a policy
position, without considering other facts or other sides of the debate.
**********************************************************
PWC Report
Summary
PwC believes that income trusts have a place in Canada and have been an economic
success. The income trust structure has enhanced Canadian capital markets by
offering small and medium sized firms opportunities to expand their businesses
and invest in innovation.
The proposed solution to what the government views as inequities in the
comparative tax treatment of corporations and income trusts, as proposed in the
Tax Fairness Plan, fails to address the unfair treatment of tax-exempt
investors. Under the government’s proposed policy, this class of investor faces
an excessive tax rate on investment income.
We believe that without appropriate adjustments, the government’s solution may
fail, resulting in the loss of a potentially important engine of growth, and may
limit the wealth accumulation of Canadian investors and retirees.
We believe alternative policies are available to government and ask government
to consider these alternatives.
HDR Economics Report on Tax Implications
November 2005 report into tax leakage finding essentially no tax leakage after RRSP contributions are treated as tax differed not tax except.
The authors meet with DOF officials and were essentially in agreement on the
methodology. This report is important because it was released around the time
the Liberals were looking into the issue and points out the flaws in
government
report
. it is no wonder that the
Liberals elected not to rely on the DOF report and have since favoured a wide open
consultation approach. The conservative had access to all this information and
decided to ignore it.