As the income trust fiasco re-ignites this week and the finance minister threatens to eliminate tax cuts if he doesn’t get his way, it seemed like a great time to talk about trust and taxes. Are income trust investors a bunch of geriatric, selfish whiners, or do they deserve support and sympathy? Is Jim Flaherty right to stick it to income trusts so he can finance other tax cuts? If so, which ones?
MPtv, being a natively curious medium, set out with its rucksack and camerabag to find the answers, and ended up on the doorstep of the Canadian Taxpayers Federation. This watchdog group is the scourge of free-spending politicians, and here’s a conversation between Garth (always frugal) and CTF national director John Williamson.
To view the video, click here.
36 comments ↓
1) Mr. Harper’s policy to tax income trusts will now result in double
taxation of RRSP accounts. Under his proposal, when a company pays a
dividend, it will be taxed the first time at the corporate rate of 31.5%,
and taxed a second time at the personal rate (21.5%-46% in ontario) when
the money is withdrawn from the RRSP. This unfair tax will have a
disproportionally high negative effect on low and middle income earners.
Individuals in the lowest tax bracket will see their tax jump 147% (from
a tax rate of 21.5% to 53%) compared to a jump for high income earners of
only 68% (from 46% to 77.5%). The Finance Minister should really call
this the “Tax Unfairness Plan”.
2) Mr. Harper’s LIE not to tax income trusts personally cost me $13,000.
This is also unfair.
Keep reporting on these issues- since ordinary Canadians will NEVER forget
the money they lost until the lying conservatives are out of office.
One pissed off Canadian,
Andrew
Waterloo, ON
Garth, let us put this energy trust melt down into perspective, shall we. I speak as a retiree that has lost about $50,000 (on paper) in market capitalization since the end of October.
However, I believe the decrease in market value has also been caused by the warmer than usual heating season so far, with its associated decline in value of the market units of oil and gas. The last 30% of the decrease in capitalization since October 31st has been caused by commodity prices, not changes in taxation rules. Pundits complaining about the situation (i.e. the taxation change) just make the situation worse.
What is even more significant is the fact that hedge funds and brokerage firms used the new tax rules as a method to scare people and to jerk the market around even more significantly than they usually do! The greed of the big players feed on the fear of the small investor.
Incidentally, the income from my energy trusts has yet to decline and investors picking up units now (myself included) are getting even higher returns based on the unit prices. I am prepared to see the dividends decline somewhat in the future if the energy prices continue to erode.
If an energy trust’s management is intelligent, they will be able to reconfigure their focus in the next four years and still have a profitable and viable entity. If we can reduce the profit flow of our Canadian companies to our greedy neighbours to the south, so much the better.
I am sure that the people who pull down 6 and 7 figure bonuses in the investment community will tear my comments to shreds, but I am a small investor, not a bottom feeding trader or greedy hedge fund manager.
Steve
Hi Garth,
Thank you for your efforts in reversing the Flaherty decision on Income trusts. I believe they have a legitimate role to play in any economy if the trust is really disbursing 90% or 95% of its cash flow. The government should fix the abuse of income trusts rather than destroy them altogether.
Thanks,
Tomasz
John Williams, CTF director, seems to have a very narrow view as to what might benefit Canadians most. His only idea is less taxes. That is his mandate.
What about ideas such as INVESTMENT in future productivity? It is just so important to get this economy moving so that it benefits us all, rather than cutting taxes, cutting jobs, cutting, cutting, cutting. That got us nowhere in the late 80’s, early 90’s, didn’t it?
A bit off topic, but did anyone happen to catch the name of the fellow chairing that last commons finance committee hearing? I can’t find it anywhere.
Brian Pallister. — Garth
Unfortunately, Flaherty does not understand Income Trusts, and the important function they serve (and provide investors with some regular income). He doesn’t even understand the double taxation of these investments. Nor does he account for future tax revenue in calculations?
There were many rational options he could have taken about Income Trusts- instead the Conservatives lied, denied their own arguments in favor if Income Trusts, screwed investors, and has made these Income Trust mor vulnerable to foreign ownership. NONE OF THIS IS A BENEFIT TO CANADIANS.
And to now say that he had to do this to fund future tax cuts really shows the incompetence of Mr. Flaherty as a Finance Minister.
Mr. Flaherty meets Mr. Barrowclough (Mr. B.).
I am returning to this meeting which took place last Monday at the risk of being flamed for not being directly on the current topic.
However, I have been thinking (slowly) about the Minister’s remarks of the next day (Tuesday, Hearing Day). He mentioned four times by my count (I paraphrase) “today I met with someone who was hurt by being invested in Income Trustsâ€. Four times in two hours of hearings and press interviews.
I now think that Mr. B. was the FIRST Income Trust investor that the Minister has met since he made his Halloween move. The first one! Perhaps even the first voter!
The Minister who bragged that he chatted with the people in his riding while taking the GO train probably hasn’t met anybody outside his political circle in months. He’s been in lots of meetings. He spent the Xmas break touring China. He was surprised and offended when Mr. B. wouldn’t shake his hand.
The point here, I believe, is that Mr. Flaherty has no real idea of the disdain in which he is currently held by a large number of his fellow citizens.
Polls don’t have the weight of Mr. Barrowclough’s gesture. Politicians are hard wired to seek popularity; Mr. Flaherty finally glimpsed on a personal level the disgust that most feel about the broken promise. Garth, please mention to Jim that he should get out more, it will do him good.
Steve,
It would be interesting to hear which Energy Trusts you own, as mine have been decimated, especially True Energy, and nearly all of them have cut their distributions. The others I own, including Pengrowth, which is very well managed in my opinion, are still down a few dollars since October 31 which I think is largely due to the uncertainty surrounding this whole issue.
What irks me the most about the whole thing has been the lies and misinformation the Gov’t has been putting out on the subject, which the majority of Canadians (and MPs) don’t fully understand. They say that Trusts don’t exist anymore in the US, which is false. They are simply called something else and are still very popular.
So first Flaherty said they wanted Corporations to pay tax on distributions (but they’ll reduce the Corp tax) and now if Flaherty doesn’t get his way, he’ll cancel planned tax cuts. Kind of defeats his logic about avoiding tax leakage doesn’t it?
Dear Garth Ihave been glued to my tv watching the government try to defend there lie. But in all of this, one key point seems to be missed. I lost a lot of money, not so much because they broke there promise. But it was the promise that reasured me that income trusts would be a safe investment and in beleiving this I invested. This same lie is what caused the change that they are using as the excuse as to why they broke there promise. So my question is was the promise a calculated lie that they new would win many votes but at a cost of billions to those very same voters at a later date? Thank You . Larry
I dont thing that Mr Flaherty is stupid or that he doesnt understand what is a trust. But I’m sure he is lying.
The only problem with income trusts is : why shoudl i invest in a 2% yield share when i can buy a 12% one. Regular compagnies represents the bigest part of the canadian economy and with income trust they cant sell us new shares. Mrs Flaherty has solved this problem : no more trusts…and most of all he has done this with our money. This measure is costing us 20B $.
A REVELATION–Maybe “Chainsaw Jimmy” doesn`t give a rat`s wisker about the lowly investor in this country–apparently investing in trusts is unfair to those investing in “legal’ securities!!
Let`s just throw more money at Ottawa & see where that gets us!!
Give me a break!!!!!!!!!!!!
Still bummed in Rodney!!
There are another group of pensioners who have had there pensions slashed, and unlike those funded through ICT’s, these folks stand no chance of ever regaining their lost income.
Of course, I am talking about those pensioners who have so called “defined benefit pension” plans which were underfunded, supported by the operating profits of their companies and then the companies went out of business.
What can be done to help these pensioners? And while the problem was not caused by a sudden change in government policy, government regulations dictate how these plans run.
Not only that, but contributing to these plans also reduces the ability of the employee to contribute to personal RRSP’s, especially if the negotiated pension is too rich.
My solution, get rid of these plans. I know the Unions and the large pension plans like Ontario Teachers won’t like that. But reality is these plans are not as guaranteed as the unions think, as can been seen when a company goes belly up. Not only that, they can put undue strain on a companies finances, see Ford, which may cause them to go belly up. Give employees defined contribution plans and give them the ability invest the money where they like…there’s plenty of good professional financial advice out there on how and where to put your money.
The Conservatives are spent! How does anyone that supports that party through financial contributions, memberships and lawnsigns not understand that they have been given the shaft by those they so willingly support?
There’s no such thing as a surplus when you’ve got a honkin’ huge debt to cover. Lower taxes once we’ve paid off the debt. Interest payments are killing us, and they’ll kill our kids even worse.
“John Williams, CTF director, seems to have a very narrow view as to what might benefit Canadians most. His only idea is less taxes. That is his mandate.
What about ideas such as INVESTMENT in future productivity? It is just so important to get this economy moving so that it benefits us all, rather than cutting taxes, cutting jobs, cutting, cutting, cutting. That got us nowhere in the late 80’s, early 90’s, didn’t it?”
By Marg on 01.31.07 11:03 pm
*****
Simply put the income trust structure was never thought suitable for new businesses that required investment in future productivity:
from Tax and Other Issues Related to
Publicly Listed Flow-Through Entities
(Income Trusts and Limited Partnerships)
Consultation Paper
September 2005
“Under Canada’s income tax system, some types of businesses are better suited than others to the FTE structure. For example:
• The corporate structure may be more suited for growing businesse(businesses that are not distributing a large proportion of their cash flow as dividends). This is because income
retained in the corporation generally bears less tax than if the income is earned at the personal level.
• The FTE structure may be more suited for mature businesses. This is because FTEs can distribute cash flows in a manner that achieves full integration of the personal and corporate income tax systems, removing an impediment to distributions.”
http://www.fin.gc.ca/activty/pubs/flwthruent_e.pdf
To Andrew – Ont.
Point 1. You’re correct, that income trusts in RRSP will be taxed twice. But so is every other investment in an RRSP.
You could argue that capital gains in an RRSP are unfairly taxed at double the rate of gains outside an RRSP as the inclusion rate is only 50% for capital gains outside an RRSP but 100% inside. But you conveniently forget that taxes on an RRSP are deferred, you get pay less tax when you contribute…so thats the price we have to pay for deferring taxes.
2. And you lost $13,000. Ok. have you sold your ICT’s? If not, you’ve lost nothing until you do. When Mr. Alan Greenspan gave his “irrational exuberance” speech, raised interest rates to slow the US. economy and the BOC followed suit, the tech bubble burst(and I wasn’t a large holder of tech) on paper I lost considerably more than $13,000 on less than $100,000. But I know investing is for the long term….if you can’t leave the money invested for the long term you shouldn’t be there and you certainly shouldn’t have been in ICT’s which are not fixed income investments but rely on the underlying company making money which includes their tax treatment. Because of this additional risk, they pay a higher yield. One of the factors of this risk is government policy including interest rates and tax treatment.
So complain that Mr. Flaherty lied..I would agree with you. But that’s part of the risk of investing, governments change policy all the time.
Apologies for the ranting nature of the last post, but the point had to be made!
Good Morning Garth:
Thank you so much for what you are doing – I am a US investor and my son has lost half of his medical school money since Oct 31.
I got this info from the BB today and you may want to post this.
Thanks again for all you have done,
Richard
The Hon. Flaherty and his wife will be answering questions in an open session on Thursday Feb 1 from 7-9pm at Westminister United church (1850 Rossland Road E, Whitby, Ontario). A great opportunity to voice your concerns about the trust unit situation.
RMP
The Hon. Flaherty and his wife will be answering questions in an open session on Thursday Feb 1 from 7-9pm at Westminister United church (1850 Rossland Road E, Whitby, Ontario). A great opportunity to voice your concerns about the trust unit situation.
Larry posted: “So my question is was the promise a calculated lie that they new would win many votes but at a cost of billions to those very same voters at a later date?”
It has been all along my feeling that Harper has done just that. Stock traders are a minority of the voting public and trust traders are yet a minority of traders ..hence an attack on a very small minority that wrongly appeases a majority. That minoirity so small they’d probably never be able to mount much public resistance.
At this point I’d love to see another MP do as Garth has done and invite some of the trust traders who were hurt by this to Parliament.
Jerry
All the lengthy discussion regarding ‘risk taking’ in investments clearly indicates that there are many people who have a serious gambling problem.
I guess dressing it up as ‘investment’ makes it seem less insane than calling it gambling?
Why not just build more casinos and get rid of all the stock theories, investment BS,etc., and let those who believe they have a sure bet go do it to it? Remember, no taxes on gambling winnings! Problem solved!
Former Alberta premier Ralph Klein says Stephen Harper’s income trust tax breaks a pledge to Canadians and the way for the prime minister to redeem himself politically is to ditch the levy. “From a political point of view, Mr. Harper should go back on his actions,†Mr. Klein told CTV’s Mike Duffy Live on Wednesday.
I helped vote Harper in and did think he had started to look like he was going to fit in nicely as a PM until this trust fiasco. I believe Harper should reverse it and to take the limelight off himself ‘REMOVE’ Flaherty as Finance Minister.
BTW have a lQQk into this:Canadian Association of Income Trust Investors. A rapidly-growing group of investors from all walks of life, who have united to make our voices heard in Ottawa. http://www.caiti.info/
Jerry
Correct me if I am wrong.
Wasn’t it the Finance Minister that sold the 407 in Ontario for a song to the Spaniards?
The whole crux of the matter is this:
Flaherty has to amend the treatment of RRIF and RRSP accounts on this file. I think that the whole argument is based on the tax treatment of RRIF accounts, RRSP accounts, Canadian non-registered accounts and foreign accounts. The tax treatments should have been addressed individually and in a comprehensive manner. Flaherty has not done his homework on RRIF and RRSP accounts!! The whole problem with the way Flaherty is approaching this is that seniors who held income trusts in their RRIF accounts are the worst off. These people held income trusts in their RRIF accounts for the monthly distribtutions they were receiving. Many people don’t know what RRIF account holders are going through, because a lot of people arguing this issue aren’t retired and have RRIF accounts yet. There is no capital loss writeoff provision in RRIF or RRSP accounts. Flaherty provides no dividend tax credit like non-retirement accounts have and will have under this ways and means motion. Flaherty unjustly categorizes RRIF and RRSP accounts as a tax leakage because he doesn’t want to wait for tax?! RRIF accounts for one pay tax on disbursement! There is no wait! What Flaherty may not know, because he is a lawyer, not an investment advisor is that RRIF accounts base their payout schedule on very strict government prescibed schedules. These schedules are determined on 8% of NAV at the beginning of the year! Not addressing the butterfly of RRIF and RRSP account treatment has caused the current hurrican on Parliament Hill!
The 8% RRIF amount is an example. Here is how the RRIF payment schedule is really calculated:
RRIF payment schedule
Example:
You turn 69 and open a RRIF by the end of the year. Your plan balance at January 1st of the next year is $100,000. In order to find your withdrawal amount, take your plan balance and multiply it by the minimum withdrawal percentage in the schedule below: $100,000 x 4.76% = $4,760. This is the amount you must withdraw during the year. You can use the same method to calculate your minimum withdrawal up until you are 94 years old.
The next year, you will be 70 on January 1st and as such, the mandatory minimum redemption amount will be 5.0% of your RRIF’s value on January 1st.
* For RRIFs that were already in existence in 1992, use the applicable rate listed under “Old Schedule”. At age 78 you will then switch to the “New Schedule”.
Any RRIF opened in 1993 and beyond will automatically use the “New Schedule” rates.
Age Old Schedule%* New Schedule%
69 4.76 4.76
70 5.00 5.00
71 5.26 7.38
72 5.56 7.48
73 5.88 7.59
74 6.25 7.71
75 6.67 7.85
76 7.14 7.99
77 7.69 8.15
78 8.33 8.33
79 8.53 8.53
80 8.75 8.75
81 8.99 8.99
82 9.27 9.27
83 9.58 9.58
84 9.93 9.93
85 10.33 10.33
86 10.79 10.79
87 11.33 11.33
88 11.96 11.96
89 12.71 12.71
90 13.62 13.62
91 14.73 14.73
92 16.12 16.12
93 17.92 17.92
94 + 20.00 20.00
http://www.altamira.com/altamira_en/accounts-services/accounts/_rrif+payment+schedule.htm
The following shows the complexity of taxation for retired seniors:
The Right Combination
The withdrawal strategies in retirement income planning are a very different art and science from financial planning strategies during the accumulation years. Creating retirement income efficiently starts with using the least flexible and least tax-efficient sources and assets to create taxable income that falls under the first tax bracket ($35,000 in 2004). This would commonly include pension income, government benefits, RRSP/RRIF payments as well as interest income and taxable distributions from non-registered investments such as GIC’s and mutual funds.
From this point the use of more tax efficient forms of income will put less strain on the assets that are generating this cash flow. As the table above “Withdrawals Required†illustrates, when we are above $35,000 in taxable income it takes $1.54 of RRSP money to get the next $1.00 to spend while we need only $1.21 of income taxed as a capital gain to achieve the same after-tax result. And, as obvious as it sounds, we need only $1.00 of after-tax capital to have $1.00 to spend.
Ultimately, the key to using personal income producing assets in the most efficient manner is to create the after-tax income that is needed while keeping taxable income low. Taxable income is also the measure used by government to reduce tax-credits and entitlement to government programs including the Old Age Security Benefit and, within certain provinces, pharmacare benefits.
Properly layering your income in a tax-effective manner can extend the longevity of income producing assets, preserve tax-credits resulting in less tax payable and enhance entitlements in other government programs where the level of participation is dictated by the amount of taxable income you receive.
A comparison of your current income structure to one that is based on tax efficiency could reveal some opportunities that will have a very positive impact for you over the years.
http://www.professionalreferrals.ca/article-1006.html
James,
the prize for the stupidest comment of the day is yours:
“”And you lost $13,000. Ok. have you sold your ICT’s? If not, you’ve lost nothing until you do…”
The income trusts were valued the way they were because the tax treatment.
Without that trust treatment they are worth much less.
I heard that stupid assertion (you don’t lose money unless you sell) to many times. I can no longer put up with it.
You brought up the tech bubble.
Remember 724 Solutions? It shot up to about $350/ share.
Recently it went private for about .35/share.
Imagine one would have bought at the peak and-listening to people like you- would have held to the shares.
See how idiotic your logic is?
For all ignorant and naive investors out there:
If the decision is not reversed or at least changed to 10 years,
another 20% drop -on average- is coming!
And don’t count on those distributions!
The ICT CEO’s are human. To survive, they will have to drastically reduce distributions.
Geoffrey L, do you ever get tired, do your hands cramp up from typing. Give it a rest!!! Your arguements are sooooo lop-sided they are ridiculous.
If you put $1 in your RRSP 20 years ago and averaged say 8% it is worth $4.70 today not to mention a 35 cent credit when you invested. Withdraw the $4.70 at the 35% tax rate you will still be left with $3.055….triple what you put in.
http://www.advisor.ca/freezone_nologin/article.jsp?content=20011213_000000_0000
Trevor on 02.01.07 5:30 pm
Most all problems with the TFP would disappear if there was a dividend tax credit for both corporate dividends and income trust distributions in RRSP and RRIF accounts, and a one time write of capital losses versus income. That’s it.
To James
One small correction; however a very important one to an investor.
All income in an RRSP is NOT taxed twice.
A simple example, interest on bonds or covertible debs is received directly from a corporation tax free and ultimately taxed on withdrawl only once.
The corporation or trust making the interest payment deducts such interest payment in determining the taxes it owes.
Logic would seem to say that if the proposals put forward by this government are passed into law most existing trusts will simply lever up and pay interest rather than profit distrubutions.
Worth posting the whole shebang:
http://www.canada.com/topics/finance/story.html?id=749bc7bb-cb96-4a31-a174-b2293c0804a7&k=26796
RRSPs not ideal for everyone?
Poor choice for low-income Canadians: experts
Bruce Cheadle
Canadian Press
Monday, January 29, 2007
CREDIT: Getty
Some 38 per cent of seniors — about 1.5 million — qualify for the GIS at retirement. Those who hold less than $100,000 in RRSPs are saving for the public treasury as much as for themselves.
OTTAWA — At age 63 and facing a very modest retirement income, Greta Doucet is cashing out what’s left of her meager nest-egg as fast as she can.
“I have a little bit left, but if you don’t have a fairly large amount, you’re just shooting yourself in the foot,” said the part-time nurse and seniors advocate from New Brunswick. “You don’t have enough to get yourself anywhere.”
Converting her last $15,000 in RRSPs into cash and pumping the money into the mortgage of her Moncton home may sound like financial heresy in this season of wall-to-wall investment ads, when Canadians are being implored by financial institutions to max out their registered retirement savings.
But Doucet is simply following the best advice of experts who fully understand Canada’s complex public pension system.
For modest income Canadians approaching retirement, RRSPs mainly benefit governments that claw back and tax their returns almost dollar-for-dollar after retirement.
“There are lambs off to slaughter as we speak,” Richard Shillington, a freelance statistician, consultant and author from Ottawa says of the annual RRSP buying spree.
“The retirement planning that you’re likely to get from the person in the cubicle at your bank, or from reading those articles about people who have incomes of $200,000, is wrong if you’re among the half of us who don’t have a pension plan.
“And nobody’s going to tell you.”
Shillington has been banging this drum since 1999, when he first laid out the huge tax hit on retirement savings in a study for the C.D. Howe Institute.
Looking at Statistics Canada data, he found that low-income retirees had squirreled away about $12 billion in RRSPs and $5 billion in registered retirement income funds (RRIFs).
“The greatest impact of these funds is to reduce the cost of government programs, rather than to improve seniors’ standard of living,” Shillington wrote.
Here’s how it works.
Low-income Canadians — say, below $30,000 annually — get a relatively modest tax break on their initial RRSP purchase because of their low income tax bracket.
When they go to cash in after retirement, their RRSP income counts against their Guaranteed Income Supplement (GIS), which is clawed back 50 cents for every dollar of retirement income.
The pension income is also taxed, meaning the senior sees only 25 cents of each dollar saved.
Not only that, but many seniors programs — think meals on wheels, subsidized retirement homes, prescription drugs and home care — may also be income-based, depending on the province.
So the effective tax rate on RRSP income in some cases is more than 100 per cent, says Shillington.
And while low-income people get the worst deal, Shillington argues that even middle income Canadians who don’t have a company pension plan may hold what he calls “futile savings.”
“What I’ve said to people is, if you don’t have an employer pension plan then you want to have more than $100,000 in your RRSP at retirement — or nothing. The worst thing you could have is $30,000 in your RRSP.”
Some 38 per cent of seniors — about 1.5 million — qualify for the GIS at retirement. Those who hold less than $100,000 in RRSPs are saving for the public treasury as much as for themselves.
Shillington has called the current RRSP mantra fraudulent.
“I will defend the use of the word fraud,” says Shillington, who does not sell financial services or advice but has a website (www.shillington.ca) and hopes to publish a book this spring entitled Retirement Planning for the Rest of Us geared to low-income households.
“People are being encouraged to save money in an RRSP on the belief that they will benefit from it at retirement. The government knows that for many of them, that’s not true.”
The Conservatives under Stephen Harper said as much in their 2004 election platform, when the party pitched a new registered lifetime savings plan that would be tax-free upon withdrawal.
“When retirees withdraw their RRSPs,” said the 2004 Tory platform, “they not only pay tax, but often have significant portions of their old age security benefits clawed back. The RLSP would particularly benefit low- and middle-income Canadians.”
The savings plan promise was dropped from the party’s 2006 election platform.
Officials in two federal government departments, Finance and Human Resources and Social Development, would not comment on whether the policy issue is still actively being considered.
Shillington uses the example of a 50-year-old earning $25,000 a year with no savings.
By common financial industry calculations, he’ll need 70 per cent of that income in retirement, or $17,000 annually. Using simple RRSP calculators offered on banking websites, the individual might be told he needs to save up to $392,000 over the next 15 years.
“In fact, that person has to save almost nothing to get a $17,000-a-year income at retirement, because OAS (Old Age Security), GIS and CPP just about gets them there,” said Shillington.
“It’s just basically wrong.”
Malcolm Hamilton, an actuary with Mercer Human Resource Consulting in Toronto, is one of Canada’s leading pension experts.
He believes governments have done a poor job of setting retirement policy for the poorest and the wealthiest Canadians. The difference is that wealthy people can pay advisors to help arrange their retirement finances.
“The way they’ve designed the system it doesn’t pay low-income people to use RRSPs,” Hamiltion said in an interview.
“The rational thing to do is to yank the money in its entirety before 65. You don’t need to spend it, but you do need to get it out of the tax shelter before the clawbacks kick in.”
Even after taking the tax hit from cashing out RRSPs, people are further ahead, especially if they use the funds to pay off credit cards or mortgages.
David Perry of the Canadian Tax Foundation, an independent public policy research forum, joked in an interview that given the tax hit and clawbacks, low-income Canadians approaching retirement would be better off buying a case of beer than an RRSP.
“Better to invest in something that you or your soul needs in retirement,” said Perry, turning serious.
“Why not take that trip home to England or Latvia or China?”
Shillington says he’s been accused of advising people to “scam” the system. But when wealthy people arrange their finances to minimize their tax load and maximize tax breaks, it is considered sound financial management.
Hamilton agrees.
“You really need to tell low-income people how to protect themselves from their government, so I don’t see the moral qualm here,” said the actuary.
For Greta Doucet, she’s just making the best of a poor retirement income situation after a career spent raising three kids, working part-time and being active in the community while nursing two failed relationships.
“I guess it’s just admitting that I didn’t really take good care of myself, which I suppose a lot of 60-year-old women didn’t do,” she said with good-natured charm.
“To get my house in order and keep my house as long as I can, that’s the goal I’m aiming for. The RRSPs are gone.”
Government retirement programs will provide Doucet between $16,000 and $17,000 a year, which is poverty level in Moncton.
“I’ll have to do with that, and I’m not the only one.”
© Canadian Press 2007
*****
I think that there needs to be a discussion about the tax treatment of RRSPs and RRIF accounts in Canada. These are supposed to be the primary retirement savings vehicles in Canada for 70% of the population and not much insight into how they work in this country. Garth, we need you to take a look at these for the benefit of Canadians and suggest ways to improve them: double taxation of corporate dividends and now perhaps income trust distributions, dividend tax credit, a more thorough understanding of the tax implications of RRIF accounts, the implementation of Roth IRA type accounts like the Conservatives promised but dropped, etc…
Have been decimated to the tune of 53,ooo by gov’t broken promises. What is more serious is the loss of potential income having to drop from a 10% avg return to a 4% guaranteed return. Very market shy at the moment.
Will conservatives suffer because of this, probably not. Number one, Canadians in general carry debt and don’t have a comfortable amount of money. Number two they are insanely jealous of anybody that does and automatically side with the Finance Minister without doing their homework and getting the full story. Sad but true.
Why target trusts when any Cdn taxpayer can hold 100% of their RRSP’s in foreign investments. So its OK to get a tax break if you invest in a foreign company that competes directly with Cdn companies but its wrong for Cdn based companies, providing local jobs therefore generating tax revenue, to distribute their profits to Cdns who then pay the taxes. Why didn’t Flaherty reverse this Foreign content policy instead of targeting everyday Cdns.
There needs to be an analysis of how much tax RRSPs and RRIFs generate to CRA. RRIF accounts generate income yearly to the government, since Flaherty calls them tax exempt. As well the income causes the government to claw back benefits. Some commentators say that when looked at wholistically RRSP holders end up paying up to 100% tax on their money. RRIF account holders require monthly income. The government failed to recognize that part of the attraction of income trusts was the monthly periodicity of the distributions. Instead, the government RRIF account holders as important to them. Flaherty does not care about RRIF account seniors. Plain as that.
RRSPs are the only available method to save for retirement and the government double taxes dividends and now income trust distributions.
Is this fair?
By Geoffrey L on 02.02.07 10:20 am – Hey, Geoffrey, how much of the monthly income lost to taxes in four years will be made up by the pending law enabling full income-splitting for pensioners?
Tim D on 02.02.07 4:50 pm
It depends on whether the pensioner has a spouse to split the income with. It also depends on how much a couple who depends on RRIF accounts with income trust holdings will have available as income.
By Geoffrey Laxton on 02.02.07 11:56 pm – of course.
My point is that along with any negative impact that might accrue in four years because of income-trust flows that are lower due to tax, MANY, MANY pensioners will receive the BENEFIT of income-splitting! And, that is to start before the 4 year time frame! So, if you want to complain that seniors are suffering from lower cash flows in 4 years, fine. But, also recognize that there is a brand, spanking new benefit – that no one other taxpayer group is getting.
By Geoffrey Laxton on 02.02.07 11:56 pm – of course.
My point is that along with any negative impact that might accrue in four years because of income-trust flows that are lower due to tax, MANY, MANY pensioners will receive the BENEFIT of income-splitting! And, that is to start before the 4 year time frame! So, if you want to complain that seniors are suffering from lower cash flows in 4 years, fine. But, also recognize that there is a brand, spanking new benefit – that no one other taxpayer group is getting.
By Tim D on 02.03.07 2:45 pm
Let us say that you are a retired senior, say, a single female because your husband died, and held income trusts in your RRIF account before Halloween, and you depend on monthly income trust distributions to fund monthly RRIF payments. Do you know how this will effect your income for 2007? Have you done this analysis?
What Jack Mintz should have told the Finance Commmitte:
“The last thing a minority government would like to do is to attack income trusts with special taxes imposed on distributions. I think there is a better way to go, and that is to create a truly level playing field, making it equally attractive to be a corporation as it is a trust under the tax system, and letting businesses and investors decide how best to organize themselves. Several policies are needed to achieve neutrality, but they are not out of reach.
The first option would be to make it attractive for pension and RRSP accounts to hold corporate securities rather than just income trust units. This can be achieved by following the past European practice of providing a “refundable” dividend tax credit, matched to actual corporate taxes paid, so that investors are able to receive the credit even though they pay little or no personal taxes. That represents a fairly significant change to the tax system, but it would have a dramatic impact in reducing tax distortions in financial markets.
The second set of policies is to remove tax distortions on income trusts. The main reason trusts have had to distribute at least their income is that they would otherwise be heavily taxed on any retained taxable income. Not only is retained income subject to the top personal tax rate where the trust resides, but any distributions made in later years from retained profits will result in higher capital-gains taxes for investors. Just as the tax system discourages companies to pay out dividends, it also distorts income-trust decisions to reinvest profits in capital or distribute them.
A simple way to achieve neutrality for public income trusts is to eliminate personal taxes on distributions, in favour of a trust-level tax at a rate that puts its investors in a similar position as corporate investors. If investors can exchange income trust units for shares to defer capital gains taxes upon conversions, they can easily convert trust units into corporation shares or vice versa, thereby leaving to the market, not the tax system, the decision as to whether to create a trust or not.”
Jack Mintz
http://www.canadianbusiness.com/columnists/jack_mintz/article.jsp?content=20061023_82041_82041