RE: Amendments to Section of the Income Tax Act, Trust Loss Restriction Rules

Transcription

1 November 12, 2014 Ms. Alexandra MacLean Director, Tax Legislation Department of Finance 90 Elgin Street Ottawa, ON KIA 0G5 Mail: Dear Ms. MacLean RE: Amendments to Section of the Income Tax Act, Trust Loss Restriction Rules The Portfolio Management Association of Canada ( PMAC ), through its Industry, Regulation & Tax Committee, is writing in response to the proposed amendments contained in the Income Tax Act (Canada) (the Act ) and specifically, the amendments proposed relating to section of the Act. 1 We would like to express our thanks to the Department of Finance for the proposed amendments to the trust loss restriction rules which we believe address many of the concerns faced by our Members. As we mentioned at our meeting on Monday October 27 th, we appreciate Finance Staff expediting these changes. General Comments Following a closer review of the proposed amendments, we continue to have some concerns in the drafting of key subsections and in particular, the applicable definitions outlined in the relief and the impact of such defined terms on pooled funds. We have also reviewed the explanatory notes that were recently published relating to the proposed amendments. We have been provided with a copy of a letter dated October 31, 2014 from the Investment Funds Institute of Canada (IFIC) which was delivered to you (the IFIC Letter ) last week, commenting on the proposed amendments. We do not propose to repeat the comments made in the IFIC Letter. Rather, we wish to highlight our additional concerns. We also note our participation in a submission from Ernst & Young LLP that also sets out issues identified with the proposed amendments. While the changes proposed are a step in the right direction, we do not believe that they go far enough in exempting bona fide collective investment vehicles that make portfolio investments in publicly traded securities from the application of the loss restriction event rules. Specifically, pooled funds that manage pension plan assets are still caught by the trust loss restriction rules resulting in an unfair impact on the pension industry and Canadian investors saving for their retirement. Given the negative impact on the pension industry, we do not see a justified policy reason to exclude these types of pooled funds from the trust loss restriction relief outlined in the proposed amendments. 1 See Bill C-43 and Notice of Ways and Means Motion to implement certain provisions of the budget tabled in Parliament on February 11, 2014 and other measures published on October 20, 2014 with Explanatory Notes published on October 30,

2 Pooled Funds Pooled fund assets under management represent over $120 billion of the investable fund assets in Canada. 2 Many PMAC Members manage pooled funds designed for small to mid-sized defined benefit and defined contribution pension plans, group RRSP plans as well as foundations and endowment clients. It is common for pooled funds to include both individual accounts (registered and non-registered accounts) as well as pension plan assets. Pooled funds represent an important investment option for Canadians that allow for a cost effective investment vehicle, the management of volatility, and they comprise a necessary component of investment strategies, particularly for institutional investors. Our primary concern with the proposed amendments is that many pooled funds managed by our Members are managed to comply with investment restrictions under the Pension Benefits Standards Act ( PBSA ) or similar restrictions under provincial law. In general, these rules apply a book value test in determining permitted investment concentration rather than fair market value as contemplated by the trust loss restriction relief. In other words, if a pooled fund includes pension plan assets and is thus managing the assets to comply with the PBSA investment restriction test, it can not avail itself of the trust loss restriction relief as it is offside the investment restriction test contained in the relief which requires the use of a market value test. That said, the investment restrictions under the PBSA are under review and are expected to be changed to a fair market value test in the future. 3 Accordingly, just as IFIC has requested in their letter additional transitional relief in 2013 and 2014 for funds that comply with the investment restrictions in National Instrument , we recommend that transitional relief be provided for those funds that are managed to comply with the investment restrictions under the PBSA until such restrictions are amended by the Department of Finance. In our view, the impact on the pension industry has been ignored by the drafting of the proposed amendments and we do not see a justified policy reason to exclude these types of pooled funds from the trust loss restriction relief. We again thank you for your attention to the broader implications on investment funds that arose under former section of the Act. We would be pleased to discuss this submission with you in more detail and respond to any questions you may have. Please feel free to contact me by at kwalmsley@portfoliomanagment.org or by phone at (416) Yours truly; PORTFOLIO MANAGEMENT ASSOCIATION OF CANADA Katie Walmsley President, PMAC Scott Mahaffy Vice President & Senior Counsel MFS Investment Management Canada 2 See Benefits Canada: 2013 Top 40 Money Managers Report. 3 PMAC submitted a comment letter to the Department of Finance dated October 29 th in response to the Proposed Amendments to Certain Regulations Relating to Pensions Benefits Standards Act, 1985 contained in Canada Gazette, Part I, Vol. 148, No. 39 dated September 27, 2014.

3 PORTFOLIO MANAGEMENT ASSOCIATION OF CANADA MEMBERSHIP LIST 2014 Addenda Capital Adroit Investment Management Ltd. Aegon Capital Management Inc. AGF Investments Inc. Aldersley Securities Inc. Alitis Investment Counsel Inc. AMG Canada ATB Investment Management Inc. Aurion Capital Management Inc. Avenue Investment Management Inc. Aviva Investors Canada Inc. Barometer Capital Management Inc. Barrantagh Investment Management Inc. Baskin Financial Services Inc. Beaujolais Private Investment Management Bellwether Investment Management Inc. Beutel, Goodman & Company Ltd. BlackRock Asset Management Canada Limited Bloom Investment Counsel, Inc. BMO Asset Management Inc. BMO Harris Investment Management Inc. BNP Paribas Investment Partners Canada Ltd. BNY Mellon Wealth Management, Advisory Services, Inc. Brandes Investment Partners & Co. Bull Capital Management Inc. Burgundy Asset Management Ltd. Bush Associates Ltd. C.A. Delaney Capital Management Ltd. Campbell & Lee Investment Management Inc. Canoe Financial L.P. Canso Investment Counsel Ltd. Cardinal Capital Management, Inc. Celernus Investment Partners Inc. CGOV Asset Management CIBC Global Asset Management Inc. CIBC Private Investment Counsel Cockfield Porretti Cunningham Investment Counsel Inc. Coerente Capital Management Inc. Coleford Investment Management Ltd. Connor, Clark & Lunn Investment Management Ltd. Cordiant Capital Inc. Cougar Global Investments LP Covenant Capital Management Inc. Crestridge Asset Management Inc. Crystal Wealth Management System Ltd. Cypress Capital Management Ltd. Davis-Rea Ltd. De Luca Veale Investment Counsel Inc. Dixon Mitchell Investment Counsel Inc. Doherty & Associates Investment Counsel Dorchester Investment Management Duncan Ross Associates Ltd. Echlin Investment Management Ltd. 18 Asset Management Inc. Empire Life Investments Inc. ETF Capital Management Evans Investment Counsel Excel Investment Counsel Inc. Exponent Investment Management Inc. Falcon Asset Management Inc. Fiera Capital Corporation Focus Asset Management Foster Asset Management Inc. Foyston, Gordon & Payne Inc. Galibier Capital Management Ltd. Galileo Global Equity Advisors Inc. Genova Private Management Inc. Genus Capital Management Inc. GFI Investment Counsel Ltd. GLC Asset Management Group Ltd. Global Wealth Builders Ltd. GlobeInvest Capital Management Inc. Gluskin Sheff + Associates Greystone Managed Investments Inc. Groundlayer Capital Inc. Gryphon Investment Counsel Inc. Guardian Capital LP Heathbridge Capital Management Hélène Dion Investment Management Inc. Hesperian Capital Management Ltd. Heward Investment Management Inc. Highstreet Asset Management Inc. Highview Asset Management Inc. Hillsdale Investment Management Inc. Horizons Investment Management Inc. Howard, Barclay & Associates Ltd. HSBC Global Asset Management (Canada) Limited I.A. Michael Investment Counsel Ltd. IA Clarington Investments Inc. Independent Accountant s Investment Counsel Inc. Integra Capital Ltd. Invesco Canada Ltd. J.C. Hood Investment Counsel Inc. J. Zechner Associates Inc. Jarislowsky, Fraser Limited Jones Collombin Investment Counsel Inc. Kerr Financial Advisors Inc. LDIC Inc. Legg Mason Canada Inc. Leith Wheeler Investment Counsel Ltd. Leon Frazer & Associates Inc. Lester Asset Management Letko Brosseau & Associates Inc. Longview Asset Management Ltd. Lorne Steinberg Wealth Management Inc. Louisbourg Investments Inc. Macdonald, Shymko & Company Ltd.

4 MacDougall Investment Counsel Inc. / Les Conseillers en Placements MacDougall Inc. Mackenzie Investments Manitou Investment Management Ltd. Manulife Asset Management Marquest Asset Management Inc. Martin, Lucas & Seagram Ltd. Mawer Investment Management Ltd. McElvaine Investment Management Ltd. MD Physician Services Inc. MFS McLean Budden Milestone Investment Counsel Inc. Mirador Corporation Montrusco Bolton Investments Inc. Morgan Meighen & Associates Limited Morguard Financial Corporation Newport Private Wealth Inc. Nexus Investment Management Inc. Northwood Family Office LP NT Global Advisors, Inc. Pacific Spirit Investment Management Inc. Patient Capital Management Inc. Patrimonica Asset Management Inc. Perennial Asset Management Corp. Picton Mahoney Asset Management Pier 21 Asset Management Inc. PIMCO Canada Corp. Portfolio Management Corporation Portland Investment Counsel Inc. Rae & Lipskie Investment Counsel Inc. RBC Phillips, Hager & North Investment Counsel Inc. Rempart Asset Management Inc. Richmond Equity Management Ltd. Ridgewood Capital Asset Management Inc. Rogan Investment Management Ltd. Rondeau Capital Inc. Roundtable Capital Partners Inc. RP Investment Advisors Russell Investments Canada Ltd. Scotia Asset Management L.P. Sharp Asset Management Inc. Silver Heights Capital Management Inc. Sionna Investment Managers Sprung Investment Management Inc. Standard Life Investments Inc. Stanton Asset Management Inc. State Street Global Advisors, Ltd. Steadyhand Investment Management Ltd. Stonegate Private Counsel Strathbridge Asset Management Inc. Stylus Asset Management Inc. Successful Investor Wealth Management Inc. Summerhill Capital Management Inc. Sun Life Global Investments (Canada) Inc. T.E. Investment Counsel Inc. Taylor Asset Management Inc. TD Asset Management Inc. TD Harbour Capital (Division of TD Waterhouse Private Investment Counsel Inc.) TD Waterhouse Private Investment Counsel Inc. Tetrem Capital Management Ltd. TFP Investment Counsel Corp. Thornmark Asset Management Inc. Toron AMI International Asset Management TriDelta Investment Counsel Tulett, Matthews & Associates UBS Global Asset Management (Canada) Co. University of Toronto Asset Management Vancity Investment Management Ltd. Venable Park Investment Counsel Inc. Vestcap Investment Management Inc. Vision Wealth Management Ltd. W.A. Robinson & Associates Ltd. Waterstreet Family Capital Counsel Inc. Watson Di Primio Steel Investment Management Ltd. Watt Carmichael Private Counsel Inc. West Face Capital Inc. Wickham Investment Counsel Inc.

5