OTTAWA – Yesterday, the Honourable Jim Flaherty, Minister of Finance, announced a Tax Fairness Plan for Canadians. The plan will restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations.

“The measures being brought forward are necessary to restore balance and fairness to Canada’s tax system, to ensure economic growth and to align Canada with other jurisdictions. Not only that, but it protects individual taxpayers, pensioners and seniors, and corporations,” says Brian Jean. “It finally outlines a clear government position, something the previous Liberal government neglected to do, and with that provides certainty and stability. It is definitely a good step.”

For months there has been a growing trend toward corporate tax avoidance. Top Canadian companies, operating within current rules, have announced their intention to convert to income trusts. They feel compelled to seek more favourable tax treatment by capitalizing on available tax rule.

While these decisions offer corporations short-term tax benefits, they are creating an economic distortion that is threatening Canada’s long-term economic growth and shifting any future tax burden onto hardworking individuals and families. If left unchecked, these corporate decisions would result in billions of dollars less in revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief. These decisions would also mean less revenue for the provinces and territories.

The measures in the Tax Fairness Plan include:

• A Distribution Tax on distributions from publicly traded income trusts and limited partnerships.
• A reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011.
• An increase in the Age Credit Amount by $1,000 from $4,066 to $5,066 effective January 1, 2006. This will benefit low and middle-income seniors.
• A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning 2007.