CTF Denounces Unfair Proposed Income Tax Amendments
CTF Encourages Canadians to Speak Out Before September 1st Deadline


OTTAWA: The Canadian Taxpayers Federation (CTF) today joined the chorus of resounding opposition to proposed amendments to the Income Tax Act which would subject Canadian investors to an annual tax on unrealized capital gains on certain classes of foreign investments.

"In an effort to crack down on off-shore tax evasion, the government is casting too wide a net which penalizes law-abiding savvy investors," stated CTF Federal Director Robinson. "It's like fumigating an entire city block to kill one cockroach found under someone's kitchen sink."

At issue, are proposed amendments to the Income Tax Act stemming from the February 1999 budget where the government proposed to "increase the fairness of the rules governing investments in foreign investment funds - to ensure that Canadians keeping their money in Canada are not disadvantaged relative to those taking their money abroad."

Draft proposals (June 22, 2000) authored by the Department of Finance and the Canada Customs and Revenue Agency (formerly Revenue Canada) not only aim to justifiably root out off-shore tax evasion but are also poised to penalize Canadians who legally and transparently invest in various U.S. investment vehicles.

Under these proposals, capital gains that accrue in the price of various U.S. investment vehicles [ex: exchanged traded funds (ETFs), some U.S. stocks, closed-end mutual funds and foreign investment trusts] held outside of the foreign content protection of one's RRSP would be subject to annual federal taxes even though investors do not sell these investments.

"This is offensive and patently unfair," noted Robinson. "These investors are using their after-tax dollars to build retirement nest-eggs which will now be subject to tax simply because they are growing. It's similar to taxing a cottage owner on the appreciation of the market value of their cottage even though the owner hasn't sold their cottage."

Robinson added that "Minister Martin calls these proposals fair and workable. This is simply not true. What we are looking at is an annual massive tax grab even though Ottawa is already raking in billions in annual surpluses. These proposals are flawed and wrong. Canadian investors only have three days left to voice their displeasure to Finance officials before the September 1st deadline."



BACKGOUNDER

In February 1999 Federal Budget, Paul Martin proposed to "increase the fairness of the rules governing investments in foreign investment funds and transfers to non-resident trusts to ensure that Canadians keeping their money in Canada are not disadvantaged relative to those taking their money abroad."

On June 22, 2000, Finance Minister Paul Martin released draft legislation regarding the taxation of non-resident trusts and foreign investment entities. http://www.fin.gc.ca/newse00/00-050e.html

According to various media sources, a variety of organizations, influential financial analysts and practitioners have spoken out against these provisions of the June 22nd draft legislation including:

• Jon Chevreau, Publisher, Wealthy Boomer Magazine
• The Canadian Association of Retired Persons
• Investment Counsel Association of Canada
• Mutual fund "gurus": Duff Young, Gordon Pape, Dan Hallett and Stephen Kangas
• Rob Carrick, Globe and Mail Personal Finance columnist
• Malcolm Hamilton, actuary with William M. Mercer Ltd.

The deadline for input from Canadians on the June 22nd proposed changes is this Friday, September 1st. Concerned Canadians should contact both of the following individuals:

The Hon. Paul Martin, Minister of Finance
Department of Finance Canada
140 O'Connor Street
Ottawa, ON K1A OG5
Fax: (613) 992-4291 Phone (613) 992-4284
Email: [email protected]

Mr. Len Farber
General Director Legislation Tax Policy Branch
Department of Finance Canada
17th Floor, East Tower, 140 O'Connor Street
Ottawa, ON K1A 0G5
Fax: (613) 992-4450 Phone (613) 992-1916

Further discussion and notes concerning the proposed taxation of foreign investment entities can be found at a href='http://bselhi.tripod.com/usmfetftax.html' target='_blank'>http://bselhi.tripod.com/usmfetftax.html