PART I: INCOME TRUSTS (A PRIMER)

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PART I: INCOME TRUSTS (A PRIMER) The Conservatives Broken Promise on Income Trusts The Facts: During the Federal Election Campaign of 2006, Stephen Harper promised Canadians that, if they won they

1 PART I: INCOME TRUSTS (A PRIMER) The Conservatives Broken Promise on Income Trusts The Facts: During the Federal Election Campaign of 2006, Stephen Harper promised Canadians that, if they won they formed the government, a tax on income trust investments would not be imposed On October 31, 2006, Conservative Finance Minister Jim Flaherty announced a 31.5 per cent tax on income trusts Simply put: the Conservatives lied! So, why are these men smiling?! 1

2 What does this mean for you, your family, and Canada s economy?: All Canadians, whether they are aware or not, have been affected by the $25-billion economic meltdown caused by the Conservatives broken promise: o Those income trust investors who believed the campaign pledge not to tax trusts have lost much; o Those who were skeptical, but held on to their income trusts, have still suffered greatly; o And, even non-investors in income trusts have been hurt financially, if they receive, or will one day receive, a pension, because pensions were among the largest investors in income trusts With each Canadian income trust that leaves Canada for another country as a result of this decision, high-paying head office jobs and decision-making power goes with them Because of Flaherty s income trust move, no fewer than 15 Canadian trusts have flown south to the United States and other foreign nations, three more are soon to follow, and at least 12 more are thinking of also leaving Canada In short, this translates into a shrinking corporate tax base, increased personal taxes, and a loss of control over our nation s economic future Flying South Advantage Canada Flies South: now Disadvantage Canada! 2

The Liberal Solution to the Income Trust Fiasco Our leader, Stephane Dion, has promised that, if elected, one of the first moves he would take as Prime Minister would be to reduce the current 31.

3 The Liberal Solution to the Income Trust Fiasco Our leader, Stephane Dion, has promised that, if elected, one of the first moves he would take as Prime Minister would be to reduce the current 31.5% tax on income trust investments to 10%, refundable to all Canadians Experts believe that this solution restores ⅔ of lost value for investors in income trusts Stephane Dion Brings Back Advantage Canada! What the Experts Have Said about the Conservative Minority Government s Misguided Decision to Tax Income Trusts: Canadian Finance Minister Jim Flaherty (he of the idiotic trust taxation decision rendered last October 31 st, which we still believe ranks as one of the worst decisions ever rendered by a person in a position of monetary authority). (Gartner Letter, A UK analyst of global capital markets) It is interesting that a program which was originally designed to enhance tax fairness may end up not only costing the government revenue, but ownership is passing from Canadians to foreign entities. I doubt this was the plan. The question now is, how much of this can the government take? (Market Intelligence Report, Amtelecom Income Fund) Will they admit this was an ill-conceived idea, revise it, drop it or dig in their heels and in the face of the evidence that is starting to build, stay the course and let the foreigners buy up Canadian assets on the cheap. (Market Intelligence Report, Amtelecom Income Fund) Basically, you produce formidable foreign competitors in the Canadian market, competitors who have a tremendous advantage in not only operating in Canada but in buying up Canadian enterprises. John Brussa (Tax Lawyer with Calgary s Burnet, Duckworth & Palmer) The changes we ve seen in the environment for new issues, including the federal government s announcement on income trusts at the end of October, have created uncertainty and confusion... and the billions of dollars companies need for financing are going elsewhere (Ross Sinclair, Price-Waterhouse Coopers) This is a disaster for Jim Flaherty. Effectively all of these trusts are for sale... and guess what, they re all getting bought by foreigners. (Eric Reguly, Globe and Mail) 3

PART II: INTEREST DEDUCTIBILITY Here we go again: How Advantage Canada became Disadvantage Canada FACT: Budget 2007 contained a provision which prohibited Canadian companies from deducting interest

internationally, it often acquires foreign companies, and if it has to borrow money to do so, the company then deducts the associated interest costs, much like any Canadian business does when it

4 PART II: INTEREST DEDUCTIBILITY Here we go again: How Advantage Canada became Disadvantage Canada FACT: Budget 2007 contained a provision which prohibited Canadian companies from deducting interest for foreign acquisitions ANALYSIS: Canada is a very prosperous nation, doubly blessed with immense natural resources and hardworking, well-educated people When a company wants to expand internationally, it often acquires foreign companies, and if it has to borrow money to do so, the company then deducts the associated interest costs, much like any Canadian business does when it acquires another home grown company Much to the bewilderment of virtually the entire Canadian business community, in Budget 2007, the incompetent Conservative government in what can only be described as an act of deliberate deception changed the rules on interest deductibility for acquisitions The incompetent Conservative government decided to deny Canadian businesses the opportunity to deduct the interest incurred if they choose to acquire foreign companies in order to ensure their global competitiveness The net effect of this anti-business, unintelligent decision by the government, is that other countries have gained a competitive edge over Canada, because there will not only be little to no new job creation in Canada; but, even worse, existing Canadian jobs will be needlessly put at risk In the future, companies targeted for acquisition will be taken over by Asian, European, or American firms; in other words, they will be acquired by companies from any country other than Canada With their interest deductibility gaffe, the Conservatives have once again turned Advantage Canada into Disadvantage Canada But, it gets even worse. While Canadian businesses will essentially be penalized by this decision, foreign firms can acquire Canadian companies and still deduct the interest costs incurred in the process Is this fair? Is this equitable? Or, is this just about the dumbest thing you have ever heard of? 4

The Experts Opinion on the Conservatives Foolish Interest Deductibility Decision: The single most misguided policy I ve seen out of Ottawa in 35 years.

5 The Experts Opinion on the Conservatives Foolish Interest Deductibility Decision: The single most misguided policy I ve seen out of Ottawa in 35 years. (Alan Lanthier, Retired Senior Partner at Ernst & Young and immediate past president of the Canadian Tax Foundation) We are worried that the change announced in the budget may seriously undermine the competitiveness of Canada s homegrown champions the companies that are most active and most successful in building global businesses from head offices in Canadian communities. It may also damage Canada s standing as an international centre for financial services. (President and Chief Executive of the Canadian Council of Chief Executives, Thomas d Aquino) The proposal appears to be driven by revenue enhancement rather than a desire to build a competitive advantage and Advantage Canada. It s a real step in the wrong direction. (Nancy Hughes Anthony, President of the Canadian Chamber of Commerce) This is unbelievable. I don t know who in Finance looked at this. I can t believe any sensible person would do this. (Claude Lamoureux, Chief Executive Officer of the Ontario Teachers Pension Fund) I thought this government was interested in Canadian companies having a competitive edge. This takes away that competitive edge. (Len Farber, Senior Advisor at law firm Ogilvy Renault) On the question of interest deductibility, one should not throw the baby out with the bathwater... it s very important for our homegrown companies to be on a level playing field with foreign companies and not to have it tilted in favour of the foreign companies. (Liberal Party Finance Critic, John McCallum) First of all, I think all members recognize that this is a very technically difficult area of the Income Tax Act and trying to deal with abuses without throwing the baby out with the bath water is just very difficult. We should deal with the abuses, but we have to be careful as we go. (David Dodge, Bank of Canada Governor) 5

PART III: Elimination of the Withholding Tax And, if that incoherence and deceit were not enough, the Budget 2007 has also introduced a measure that removes withholding tax on foreign investments by

6 PART III: Elimination of the Withholding Tax And, if that incoherence and deceit were not enough, the Budget 2007 has also introduced a measure that removes withholding tax on foreign investments by Canadian companies. Now, investors will be able to invest in Canada and not be subject to Canadian tax. Effectively, the cost of capital just went down for foreigners. So, Let s Review: 1. Income Trusts are being sold to non-canadians at a brisk pace, because the Conservatives decision of October 31 makes the entire trust sector less expensive for foreign investors. 2. The cost to Canadian companies investing abroad just went up, because the Conservatives interest deductibility policy makes it more difficult for Canadian businesses to acquire foreign companies 3. The cost to foreign companies investing here just went down, because of the Conservatives elimination of the withholding tax, so that foreign firms will have a competitive advantage over homegrown firms in acquiring other Canadian companies. These ducks could be forgiven for going in circles, but shouldn t your government be straight with you? 6

7 This combination of policies is potentially devastating to Canadian businesses and individuals. Any one of these policy initiatives, individually, would be of little to no benefit to Canada; taken together, these policies are downright disastrous in their potential impact on this country s economy. The Liberal Party will seek to remove these measures from the Budget, pending consultation with affected parties. MORE CLARITY LESS FLAHERTY! 7

Public Opinion on Old Age Security Reform

Public Opinion on Old Age Security Reform February 3, 2012 January 31 to February 2, 2012 n=1,209 Canadians, 18 years of age and older Methodology The survey was conducted online with 1,209 respondents in English and French using an internet survey