1.7 Income trusts

Based on the Conservative Party’s 2006 campaign promise to allow income trusts to retain their non-tax status, more than a million Canadians invested in income trusts. The Conservatives broke their election promise and these investors lost over $30 billion. Many older Canadians saw their retirement savings disappear within hours.

The reason given for breaking the promise was that the government was losing revenue because the trusts did not pay tax. Finance Canada proceeded as if there was no tax revenue from income trusts. This was wrong. The trusts made payments to their investors and those payments were taxed. Recently, it has been revealed that the reason put forward by Stephen Harper at the time was not his real motivation.

There are public policy reasons to constrain or even discourage income trusts. If it could be proved that, over time, such arrangements led to a failure to re-invest profits in modernizing and expanding Canadian operations, action would be appropriate. So far this reasoning is intuitive and not empirical. What is clear is that the stated reason for breaking the promise, tax leakage, was not justified.

The decision to tax income trusts has left Canadian companies more vulnerable to foreign takeover. It will be years before we fully understand the damage caused by this decision.

Green Party MPs will:

  • Review and redress the significant damage to Canadians caused by the broken promise and adjust tax rates in light of that error;

  • Instruct Finance Canada to complete a study sampling full-cost accounting of income trusts, including lost corporate revenues and personal income tax revenues from investors, to determine a fair taxation rate on income trust incomes and dividends;

  • Push government to adopt these fair taxation rates. Ensure foreign holders of income trusts are taxed at a higher rate. In the interim, tax income trusts at 10%;

  • Inform both companies and investors of the process to determine fair tax rates on income trusts.