Taxing income trusts: Letters to Your View
Last Updated November 6, 2006
It seems there's nothing that puts people into letter-writing mode like news of tax changes. Ottawa's Halloween announcement that it would impose a distribution tax on income trusts unleashed an avalanche of comment in the following days.
CBC.ca's Your View section received more than 500 e-mail responses to our invitation to weigh in on the government's move. We've posted more than 200 of them here.
The arguments against the change — and many supporting it — were presented with passion. Some letter-writers suggested alternatives. Others addressed the political price they felt the Conservatives would pay, while some said the Tories would be vindicated in the long run.
Many of the letters spelled out losses suffered from the income trust sector's sell-off in the immediate aftermath of Flaherty's announcement.
"Yesterday, my parents lost a little over $15,000 — on paper — as the pundits like to say. This is a lot of money for them. It is a giant step backward for them at a time when they are really hoping for a peaceful and prompt retirement." — Philippe Theriault
"Here I am on the cusp of retirement; or, at least I was on the cusp of retirement until Mr. Flaherty's move on income trusts. Overnight, he wiped about $50,000 out of my retirement nest egg, and the losses are still growing today." — Rupert Taylor
"I have invested 80 per cent of my retirement savings into trusts based on the government pledge that trusts would not be altered. Today, I lost $375,000." — Ted Kozub
Some writers who supported the government's move said Ottawa had no choice but to act.
"Is the government supposed to sit by while millions and indeed billions of dollars that go towards healthcare, education and infrastructure disappear from the tax base? Although this will hurt many Canadians for a short time, this tax loophole had to be closed sooner than later." — Scott Whitlow, Edmonton
"I guarantee that within 10 years, if this wasn't done, we would all be sad about our plumeting prosperity and productivity, and we would look back and say 'it's too bad the government of the day didn't do what was unpopular, but what was the right decision to make.' " — Jimmy K, Toronto
"I don't know about you, but I have no intention of paying Bell's taxes for them." — James, who says he owns an income trust
But some writers said the "tax leakage" figures cited by Ottawa were overblown.
"All of the money distributed by the trusts is indeed taxed as income to the unit holders and … is likely to be taxed at a higher rate than it would have been taxed in the hands of the company, since the personal tax rate is higher than the corporate rate. True, some of this tax is deferred, for example when the income trust is part of an RRSP, but deferred does not mean "leaked" or "lost." It will still be completely taxed, just at a later date, and at a higher rate to boot." — Brent Johnson
"Due to the losses which exceed $25 billion at the time of writing, the federal government has already lost billions in tax revenue that it would have earned in capital gains taxes. Did any mandarin in Ottawa figure this math? — Toronto writer, who calls himself an "impoverished Canadian citizen"
Many had little sympathy for those who said they lost large amounts of money, saying they — or their financial advisers — should have known better.
"I have to be honest, for those who invested heavily in income trusts and lost a good chunk of their investments, I have little pity. One of the first rules of investing is to diversify one's portfolio." — Teri, Vancouver
"I fail to see why trust holders didn't understand the risk involved. Income trust prices had a built-in premium because of their tax treatment and the demand for the asset class. I fear that brokers, and the media to an extent, have again promoted the 'irrational exhuberance' that built up this house of cards." — CFP, London, Ont.
Some said seniors would actually end up further ahead because of the other tax measures announced at the same time as the tax on trusts. "The new measures allowing seniors to split income between spouses is a far greater long-term benefit than the hit on income trusts." — Alan Peterson, Victoria
Several writers said it was about time the "tax loophole" was plugged. "These income trusts are just another form of corporate welfare, and it's too bad that our government waited so long to step on these leeches." — Wayne McQueen
"The Liberals should have fixed this problem of tax inequity when they had power for all those years." — Chris, Hamilton, Ont.
Some writers said they supported the thrust of the new tax policy, but said there were better alternatives that would have minimized the pain felt by investors.
"Why this crude and blunt instrument to solve a relatively minor problem? If the Conservative party doesn't want banks, insurance companies, and Telcos to become income trusts, why not introduce legislation to that effect instead of clubbing an entire class of investments?" — James Shaw, Toronto
"The problem was simple and the solution was as well: limit the size of a corporation that could convert, or limit foreign ownership, or tax foreign distributions." — William Parkyn, Calgary
"I wonder if the government could have grandfathered existing trusts for a few years, or somehow softened the hit for Canadians' incomes." — Anonymous, Toronto
There was, to be sure, a lot of anger directed at what some called a "betrayal" by the Harper government.
"Regardless of whether or not the decision to tax income trust distributions was the right thing to do, the fact remains that Harper and the Conservatives LIED!" — Luc Lafortune, Montreal
"I am not sure what I am angrier about the most: losing ten of thousands of dollars of investment capital and the future income stream, or the betrayal by the Conservative Party!" — Craig Lemon
"If you [Harper] want to drop by and explain yourself, you can find me at work, until I'm about 75." — Max Contax, Calgary
And one writer suggested that it's only a matter of time until tax experts come up with something new.
"As for those who believe that corporations will now pay their fair share, be ready to see the new tax loopholes the accountants are working on as I type this." — Patti, Alberta
And then there was this from someone who signed himself Fred from Texas:
"Next time I will just put my money in a more stable market — maybe Venezuela or even Iraq."
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