First, I want to clearly state that I understand the disappointment some constituents have expressed regarding the government’s decision to take action on the income trust issue. I realize the decision has adversely affected some investments, and I sincerely regret that. I do believe that, in the early hours and days since Finance Minister Flaherty’s announcement the market has over-corrected and I am hopeful that most companies who recently converted to income trusts will not drop below pre-conversion values. I think it is also safe to say that most income trusts, if sound investments, will at least retain their pre-conversion values. I also understand, as a fellow investor, that fluctuations in the market cannot be absolutely controlled.
TAX RELIEF FOR SENIORS
Since being elected in January, our government has taken action to strengthen the Canadian economy and deliver real benefits for families and taxpayers. During our election campaign we promised to protect senior’s income and our Tax Fairness Plan does exactly that, by providing one of the largest tax cuts targeted at seniors and pensioners in Canadian history. We have:
- increased the Age Credit amount from $4,066 to $5,066 to help low to middle-income seniors;
- doubled the pension income credit to $2,000, the first increase in 30 years;
- creating a new transit tax credit to help reduce the cost of public transportation;
- reduced the GST; and
- allowed income splitting for pensioners.
We recognize that pensioners and seniors have made important investments over the years and may be receiving benefits from the current income trust structure. The final two measures listed above will allow them to retain more of their income in their retirement years.
In fact, for a couple with one partner collecting a $40,000 pension, the savings after splitting would be approximately $2,500. For a couple with one partner collecting a $60,000 pension, the savings would be approximately $2,700 each and every year. This is money that will go directly back into the pockets of pensioners and seniors.
RESULTS OF THESE CHANGES
Regardless, I know some investors will be hurt by these changes and I am sensitive to that. However, I ask you to consider the position in which Prime Minister Harper, Finance Minister Flaherty and our government found ourselves. Over the past few months, the financial landscape had changed drastically. We saw a growing trend towards corporate tax avoidance by switching to income trusts.
Had our Government done nothing, the result would be billions of dollars in lost revenue for the federal, provincial and territorial governments. This heavy financial burden would have fallen, unfairly, onto hardworking individuals and families. It is for this reason that Canada was alone in the world in its treatment of income trusts, as both the U.S. and Australia had already phased out the tax advantages given to companies using income trusts.
I certainly don’t blame corporations for seeking favourable tax treatment, but the issue suddenly facing our Government was a growing tax distortion that threatened Canada’s long term economic growth, which, by the way, would have threatened income trust growth as well.
I know that this decision is not popular with some constituents who, understandably resent the fact that we have reversed our decision from the last election. However, the situation had been changing rapidly since we formed Government and we have the responsibility, to all Canadians to react to such changes. Our announcement comes after carefully monitoring and evaluating the situation. Believe me, the decision was not taken lightly, nor was it made quickly. We decided that as the Government, we needed to act clearly and decisively and in the interest of all Canadians.
Keep in mind that our plan calls for fair tax measures for income trusts that begin after this announcement and a four-year transition period for existing income trusts and limited partnerships.
They will not be subject to the new measures until the 2011 tax year. Many people have voiced their opinions to me over the past week or so, and as more than one has said, “it was about time someone acted on this issue. Governments were years behind in correcting this issue. In the long run, this was the right thing to do.”
We will also provide more tax relief for Canadian corporations, by instituting a reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011 (in addition to the two percent reduction effective in the 2006 budget). We are also committed to our promise to reduce the GST to 5% by 2007.
Families and seniors still pay too much tax in this country and our government will continue to reduce the tax burden on Canadians. At the same time, we must ensure that no one gains an unfair tax advantage at the expense of others. It’s a responsibility we cannot and will not abdicate.
It would have been easy to do nothing, but Canada’s new Government understands that good government and good policy are about being focused, determined and decisive. Our Tax Fairness Plan is not only the right thing to do, it is in the best interests of all Canadians.
For more information, please contact:
Leon Benoit, MP
1-800-463-1194 / (613) 992-4171