Concern Mounts Over Future of Canadian Savings Vehicle

Contributing Editor

30 September 2005

The Canadian Association of Income Funds is being inundated by enquiries from investors worried about their retirement savings after the government's decision to review the taxation of income trusts. The association told a Canadian Senate banking committee hearing that the decision casts doubt on the future of the savings vehicles. "Over the past few days, we have been inundated by phone calls, letters, faxes and e-mails from individual Canadians who are frightened and worried,” Stephen Probyn, chairman of the CAIF, told the committee. The Canadian income trust market was shocked last week when the federal government announced a halt to advance tax rulings on income trust offerings, a move that was taken as a first step towards a reduction in the tax advantages of income trusts. This prompted a sell off in the income trust market. The Canadian government is worried that the growing use of income trusts is costing it substantial amounts of tax revenues. According to the Finance Department, the federal government has foregone about C$300 million in potential corporate tax payments in the last year because of income trusts. Concern has been expressed that the current income trust set up is eroding Canadian productivity by encouraging firms to pass earnings on to investors rather than reinvest the gains.