Wednesday, September 24, 2008

Liberals promise to roll back income trust tax

The Liberals are promising to reduce the tax on income trusts introduced by the Conservative government in 2006.

Liberal Leader Stéphane Dion, unveiling his party's platform in Ottawa on Monday, said if elected on Oct. 14, his party will introduce an immediate 10-per-cent tax on income trusts that will replace the 31.5 per-cent tax introduced by the Conservatives, which goes into effect in 2011.

The federal Liberals say their plan will generate $1 billion in new revenue over the next four years. They say their tax would be refundable for Canadian residents, but not for U.S. or overseas investors.

But Conservative Leader Stephen Harper, speaking in Ottawa following his announcement on youth crime measures, said any party that is suggesting it will reverse the income trust decision "is not telling the truth."

"This is about the third time they've changed their position on income trusts," Harper said. "They will find and they know, just as we knew, that they will have to reverse course."

The Conservatives, despite pledging in the 2006 election campaign to leave trusts alone, introduced the income trust tax on Oct. 31, 2006 — a decision dubbed the Halloween massacre in financial circles.

At the time, Finance Minister Jim Flaherty said more than $1 billion had seeped out of federal and provincial coffers as a result of income trusts.

Companies that set themselves up as income trusts do not pay corporate taxes, and so are able to pass along their income directly to their shareholders. They are the investment vehicle of choice for seniors because of their cash distributions.

Since the 2006 announcement, more than 60 trusts have been converted into corporations. Now only 174 trusts are left in Canada, but analysts expect almost none to exist by 2011.

Harper firm on Conservatives' income trust tax

Harper said Monday that he stands by his government's decision to tax income trusts. He noted that the Conservatives created "very generous" transition arrangements that mean taxes do not have to be paid until 2011, as well as allowed income trusts to double in size during the transition period.

But Dion fired back at the Conservative leader over the Tories' policy reversal on taxing income trusts.

"It may be difficult for Stephen Harper to believe that, but some politicians are sincere," Dion said. "I never broke my word."

Harper, however, said the Liberals would essentially increase taxes on energy trusts through their Green Shift carbon tax plan. He also suggested the Liberals would reverse the Tories' decision to allow seniors to split their incomes when filing tax returns.

"I should point out to you that the trusts have largely regained their market value over the last couple of years, but that will certainly not be the case if we have a Liberal government raising taxes," he said.

With files from the Canadian Press

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