Harmonized sales tax would be a massive hidden tax on savings

    TSX Symbol: CIX

    TORONTO, March 13 /CNW/ - Harmonization of Ontario's sales tax with the
federal GST would lead to a massive tax on the savings of ordinary citizens,
notes CI Financial Corp., which manages or administers approximately $75
billion on behalf of Canadian investors.
    "A harmonized sales tax could drain over half a billion dollars a year
from the investment accounts of Ontario residents," said Stephen A. MacPhail,
CI President. "Ontarians need to be aware of all of the implications of
harmonizing the GST and the provincial sales tax. We urge the provincial
government to avoid any new tax on savings, especially under the guise of a
consumption tax."
    If a harmonized sales tax (HST) is applied to the same items as the GST,
it would result in additional taxes being applied to investment management
services, including mutual funds, segregated funds and other managed
investment accounts, which are part of many registered savings plans,
registered income funds, locked-in retirement accounts and defined
contribution pension plans.
    The HST would generate a significant tax windfall for the province, Mr.
MacPhail said. Already, the GST is costing CI Financial's Ontario clients
about $28 million a year, and CI calculates that they would pay another $44
million annually under the HST, assuming the provincial portion of the tax is
set at 8%. That means for every $20,000 invested in a mutual fund, an investor
would pay $52 each year in HST. For the investment fund industry as a whole,
CI estimates that the GST is draining over $300 million annually from the
savings of Ontario residents, and that an HST would take an additional $500
million a year. The actual impact on investors would be even larger,
considering the incremental tax that would be charged to numerous defined
contribution plans.
    "This tax grab is the opposite of sensible public policy," Mr. MacPhail
said. "Government should be encouraging people to save for their retirement
and giving people incentives to invest in shares of Canadian companies to help
them grow. People are reluctant to invest today, which starves businesses of
capital and hurts the economy and employment. We need to be reducing taxes on
capital gains and dividends, not increasing taxes and making a difficult time
even worse for businesses and investors."
    While consumers might benefit from lower prices on manufactured goods
under an HST because Ontario manufacturers would be able to claim credits for
tax paid on the inputs used to make their products, there is no similar offset
for investment managers.
    The tax would affect a broad range of investors, from young couples
struggling to make their annual RRSP contributions to the thousands of
retirees living off their personal savings or payments from defined
contribution plans.
    Furthermore, Mr. MacPhail noted, the tax would be hidden from investors
because the Ontario Securities Commission requires fund managers to report a
single management expense ratio, a figure that includes the management fee and
other costs, such as taxes. No other business is required to hide the tax from
consumers in this way.
    Mr. MacPhail said the GST should never have been imposed on investment
management services, since it was introduced as a consumption tax and savings
were to be exempt. Nevertheless, the federal government quietly applied the
GST to mutual and segregated funds, while other investment vehicles were not
taxed. In the face of challenges from the industry, the government introduced
legislation in 1997 to reinforce the GST charge on funds retroactively to the
GST's inception.
    "A harmonized tax that targeted savings would only compound the inequity
of the GST and discourage the growth of Ontario's financial services industry,
which is a significant contributor to the provincial economy," Mr. MacPhail
said. "Speaking on behalf of not only CI's one million clients in Ontario but
all investors, we ask the provincial government not to implement this tax on
savings."

    CI Financial Corp. (TSX: CIX) is an independent, Canadian-owned wealth
management company with $74.5 billion in fee-earning assets at February 28,
2009. CI offers a broad range of investment products and services, including
an industry-leading selection of investment funds, and is on the Web at
www.ci.com/cix.

For further information: Stephen A. MacPhail, President, CI Financial
Corp., [phone]