Ottawa, October 31, 2006
Canadaâ€™s New Government Announces Tax Fairness Plan
The Honourable Jim Flaherty, Minister of Finance today 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 I am bringing forward today are necessary to restore balance and fairness to Canadaâ€™s tax system, to ensure our economy continues to grow and prosper and to bring Canada in line with other jurisdictions,” said Minister Flaherty. “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 Canadaâ€™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 nationâ€™s tax policy, not corporate tax planners.”
The measures in the Tax Fairness Plan include:
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.
A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning in 2007.
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 has come for Canadaâ€™s New Government to act,” said Minister Flaherty. “By introducing our Tax Fairness Plan today we are acting in the national interest, doing whatâ€™s right for all Canadians, and significantly enhancing the incentives to save and invest for family retirement security.”
The Tax Fairness Plan will build on the steps taken in Budget 2006. In that document Canadaâ€™s New Government delivered significant tax relief for Canadians with 29 tax cuts amounting to $20 billion in tax relief over the next two years.
Additional details are available in the attached backgrounder or on the Department of Finance web site.
For further information, media may contact:
Director of Communications
Office of the Minister of Finance
Department of Finance