SUPPORTERS
Part 1
What the Marshall Savings Plan will achieve
Part 2
What the Marshall Savings Plan will achieve:
- Resolve Jim Flaherty's income trust policy fiasco
- Preserve income trusts as an essential "profit sharing" investment choice for ALL Canadians
- Create a massive new stream of cash tax revenue for the government ($6 Billion per year)
- Provide a new source of revenue equal to 0.75% GST increase, but with no GST increase required
- Help the 75% of Canadians without pensions and preserve the means to a decent retirement income and standard of living
- Halt the continued rash of takeovers of vulnerable income trusts (eg. state-owned Abu Dhabi Energy acquiring Prime West etc)
- Restore a level playing field between the 75% of Canadians without pensions (RRSPs) and the 25% of Canadians with pensions
- Promote saving and investment in Canada by Canadians
- Direct the vast pool of Canadians retirement savings into real investment in the Canadian economy
- Avoid the systemic risks to our economy from toxic investments like ABCP and Manulife's Income Plus
How the Marshall Savings Plan Works:
The Marshall Savings Plan (MSP) is exactly like an RRSP, with one major exception: income received from investments held inside an MSP is taxable in the year in which that income is received. Unlike income trusts held inside an RSSP, where the tax is deferred, an income trust held inside an MSP is immediately taxable, hence there is no longer any tax leakage.
Any income received inside an MSP is eligible to be paid out in the year in which it is received to create an income stream and to provide the means to service the payment of taxes. Income trusts held inside of RRSPs will still be subject to the 31.5% tax, however those same income trusts held inside an MSP will not, since holding income trusts inside an MSP does not cause tax leakage, and hence there is no need for the income trust tax to apply to income trusts held in MSPs.
In brief, the MSP is a savings vehicle that serves the needs of the 75% of Canadians without pensions, while restoring a more level playing field between pension funds and individuals.
Why the Marshall Savings Plan is needed:
The income trust tax was implemented to stop "tax leakage" which actually never existed. The government's numbers showing tax losses did not factor in the 38% of taxes paid by RRSP, for the reason that this revenue was "deferred".
Unfortunately, the tax had the effect of killing the sector leading to a number of disastrous consequences:
• Canadian investors experienced a permanent loss of $35 billion
• Companies operating under the income trust structure were immediately devalued leading to a rash of leveraged buyouts and foreign takeovers - 51 to date = $59 billion
• The leveraged buyouts and foreign takeovers are executed on a basis where the new owners pay no tax at all
• These takeovers, caused real tax leakage (where none existed previously) equal to $1.5 billion annually, based on the takeovers to date. See
• Coupled with the $56 billion deficit, this will mean either major tax increases for ALL Canadian taxpayers, or a significant drop in services, or a combination of the two.
The Marshall Plan addresses all of these issues:
An example of the unlevel playing field between pension funds and RRSPs, caused by the trust tax:
OMERs has now taken Teranet Income Fund private and as such pays zero tax, making use of the trust tax “carve-out” for pension funds. Had OMERs remained a publicly traded income trust its existing owners, RRSPs/RIFs/LIFs) would be UNFAIRLY burdened with the 31.5% tax that others (private equity & pensions) can avoid by simply taking Teranet private, something which RRSPs/RIFs/LIFs are denied the ability to do, since they are precluded from owing private trusts.
This is grossly unfair, and the Marshall Savings Plan will resolve this by ensuring a tax regime in which $1.00 of pretax earnings from a trust like Teranet has to land inside a pension fund via the income trust structure, no differently than if Teranet were a public income trust held inside an MSP. Whatever set of rules that achieve that result are for others to decide, but would mean a return to the trust market as we previously knew it.
For more information see:
Tories must correct income trust blunder - Diane Francis
It’s time to reverse bad financial policies - Guelph Mercury
Why the income trust issue REFUSES to go away - Hill Times
Leadership? 10 reasons why tax on income trusts a public policy 'train wreck' - Hill Times
