Liberal income trusts proposal

This news this afternoon sounds very promising. It looks like what I've been hoping to see, a real, concrete proposal that appeals to Canadians, puts the Cons in a tough spot AND it's on an issue other than the environment:

Grits propose alternative to Tory trust tax
Canadian Press

OTTAWA — The Liberals say the government's plan to tax income trusts should be changed dramatically — and that their plan could save billions of dollars for ordinary investors.

They say the proposed tax on trusts should be reduced to 10 per cent from 31.5 per cent and that it should be made refundable to Canadian residents.

This, they say, could save two-thirds of the $25-billion that investors lost after the Conservatives announced last fall that they would tax income trusts.

They said the government should maintain a moratorium to prevent further expansion of income trusts.
(more)

There's more details on the Liberal Web site:

After hearing from numerous witnesses at the Standing Committee on Finance, the Liberal Opposition has a plan. It is proposing that the government repeal its planned 31.5 per cent tax regime and replace it with a modest 10 per cent tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately with the revenue shared equitably with provincial governments.
..
Underpinning the Liberal proposals are four main policy objectives that should have been considered by the government:
• minimizing the loss of savings for Canadians who invested in income trusts;
• preserving the strengths of the income trust sector, notably a high-yield instrument for savers and for the energy sector;
• creating tax fairness by eliminating any tax leakage caused by the income trust sector; and,
• creating tax neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes.

So, average Canadians screwed by the Harper flipflop get a break, the corporations pay their fair share and leakage is eliminated. The reaction from Harper's friends in the energy sector will be interesting. And Conservatives are put in the position of having to oppose a tax break for average Canadians.

Sounds good to me, but here's what some financial experts have to say about the Liberal proposal:

The proposal has already received support from Gordon Tait, an analyst with BMO Capital Markets, who had previously told members of the Finance Committee that extending the phase out period to ten years would likely return one-third of the investors lost savings.

“This new proposal would likely return at least of two-thirds of the losses experienced by the holders of income trusts after the October 31 announcement,” said Mr. Tait. “It would also ensure that Canadian investors continue to have a high-yield investment vehicle available to them.”

Dirk Lever, Managing Director for RBC Capital Markets, agreed with that assessment.

“I would concur with Gordon Tait’s view that at least two thirds of the lost value will be recovered,” said Mr. Lever. “It could be more.”

Yves Fortin, a noted economist who formerly worked for the Department of Finance, indicated that the proposal would put an end to any tax leakage alleged by the government.

“While I am not convinced that there is tax leakage, and expert opinions differ as to the existence or the extent of the tax leakage, this proposed 10 per cent tax would more than cover the problem,” said Mr. Fortin.

Over to you Steve.

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