November 1st, 2006
For Immediate Release
Tax Fairness Plan Announced
Includes Income Splitting for Pensioners

OTTAWA-The Honourable Jim Flaherty, Minister of Finance yesterday announced a Tax Fairness Plan for Canadians. The plan will restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations.

“The measures we are bringing forward today are necessary to restore balance and fairness to Canada’s tax system, to ensure our economy continues to grow and prosper and to bring Canada in line with other jurisdictions,” said Burlington MP Mike Wallace. “Our plan is the result of months of careful consideration and evaluation. Our actions are clear, decisive and in the best interest of all Canadians.”

For months there has been a growing trend toward corporate tax avoidance. Top Canadian companies, operating within the current rules, have announced their intention to convert to income trusts. They feel compelled to seek more favourable tax treatment by capitalizing on an available tax rule.

While these decisions offer corporations short-term tax benefits, they are creating an economic distortion that is threatening Canada’s long-term economic growth and shifting any future tax burden onto hardworking individuals and families. If left unchecked, these corporate decisions would result in billions of dollars in less revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief. These decisions would also mean less revenue for the provinces and territories.

Canada stands alone in its treatment of income trusts. The structure being used in this country was shut down in the United States and Australia.

“The landscape has changed dramatically in the short time I have been Minister of Finance, and in fact, this year we have seen nearly $70 billion in new trust announcements,” said Minister Flaherty. “The current situation is not right and is not fair. It is the responsibility of the Government of Canada to set our nation’s tax policy, not corporate tax planners.”

The measures in the Tax Fairness Plan include:

• A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning in 2007.
• A Distribution Tax on distributions from publicly traded income trusts and limited partnerships. A reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011.
• An increase in the Age Credit Amount by $1000 from $4,066 to $5,066 effective January 1, 2006. This will benefit low and middle-income seniors.

These measures represent a major tax reduction. Our Tax Fairness Plan will deliver over one billion dollars of new tax relief annually for Canadians.

For income trusts that begin trading after today, these measures will apply beginning with their 2007 taxation year. For existing income trusts and limited partnerships the government is proposing a four-year transition period. They will not be subject to the new measures until their 2011 taxation year.

“The time had come for us to act and we needed to move on this immediately,” said Mike Wallace. “By introducing our plan today we are acting in the national interest, doing what’s right for all Canadians, and significantly enhancing the incentives to save and invest for family retirement security.”

Here’s what leaders in the field have to say:

“I think there’ll be a lot of couples that will gain thousands of dollars of lower taxes on income splitting on pensions.” -Don Drummond, Chief Economist – TD Bank (CTV’s Canada AM 11/1/06)

“The Tories are tackling what the Liberals left unfinished last year.” Income Trusts: Party’s Over – Steven Chase (Globe and Mail 1/11/06)

“I think it’s a smart move.” Gene McBurney, Chairman – GMP Capital Trust (Globe and Mail 1/11/06)

“I think there was one part that was inevitable and absolutely necessary and that was for the government to clarify its position on income trusts. I think that the biggest plus of all of this is certainty. We needed certainty. Every other country’s got certainty and we’ve got that now.” -Don Drummond, Chief Economist – TD Bank (CTV’s Canada AM 11/1/06)

Additional details are available on the Department of Finance web site. http://www.fin.gc.ca

For further information please contact: Jon. W. Watson or Mike Wallace, MP

Jon. W. Watson
Executive & Legislative Assistant
Mike Wallace, MP Burlington
www.mikewallace.ca
T: (613) 995 0881
F: (613) 995 1091
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