Canadian Association of Income Funds (CAIF) Rejects Government Tax Leakage Claims

    OTTAWA, Jan. 30 /CNW/ - In an appearance before the House of Commons
Finance Committee, George Kesteven, President of the Canadian Association of
Income Funds (CAIF), rejected the government's claim that it was forced to tax
income trusts in order to stem tax leakage, and criticized Prime Minister
Stephen Harper for breaking a key election promise and taxing income trusts
without consulting industry or the public.
    "The Prime Minister repeatedly promised never to 'raid seniors'
hard-earned assets,' yet that is exactly what Mr. Harper's government has done
- moving arbitrarily and without consultation to tax the distribution payments
of income trusts for millions of investors," said Mr. Kesteven, adding "The
government has caused a multi-billion dollar meltdown of investor savings and
sounded the death knell on this sector."
    Calling the government's tax leakage estimates "flawed," Mr. Kesteven
rejected the Finance Department's claim that it was losing $500 million a year
in taxes as a result of corporations converting to the income trust structure.
Mr. Kesteven said the government's tax leakage figures have been "grossly
    "To date, no clear, credible, or consistent data has been released by the
Department of Finance to prove its claim," Mr. Kesteven told the committee
members. "And when information was requested through Access to Information to
substantiate the numbers, Department of Finance officials provided blank page
after blank page."
    Mr. Kesteven cited a report from HLB Decision Economics, an independent
third-party consulting firm, which concluded there is no federal tax leakage
due to the existence of trusts. Mr. Kesteven noted that the HLB study found
federal tax revenues generated from income trusts are higher than tax revenues
that would be generated were these organizations structured as corporations.
He also stressed that there have been many credible experts in recent months
whose data refutes the premise of tax leakage.
    "The reality is that there is no tax leakage," said Mr. Kesteven.
    Stating that the government used "a chainsaw instead of a scalpel" on the
income trust sector, Mr. Kesteven went on to outline the damage that has been
caused to the savings of Canadian investors. He also highlighted some of the
negative consequences for companies structured as income trusts, including a
lack of access to capital, depressed valuations and the threat of becoming
takeover targets.
    Mr. Kesteven noted that the vast majority of income trusts are small and
medium-sized businesses. To emphasize his point, Mr. Kesteven cited the
example of PrimeWest Energy Trust, where he works as manager of investor
relations. At the time of its 1996 initial public offering, PrimeWest was a
medium-sized business valued at $250 million. However, the company has since
grown to a value of $2.2 billion. "The Income Trust structure is unique; it
allows small and medium companies to prosper and contribute to the national
economy, and it fosters entrepreneurialism," he said.
    Mr. Kesteven asked the Finance Committee to recommend that the government
engage in a process of consultations on the substance of its tax policy, and
consider alternative approaches that will allow the income trust industry to
survive, such as grandfathering, extended phase-in, ring-fencing and
    "If implemented through the present draft legislation, the government's
policy will destroy the income trust structure and the income potential it
represents for millions of Canadian investors," said Mr. Kesteven.

For further information:

For further information: Brenda Paul-Ishikawa, Director of
Communications, The Canadian Association of Income Funds, (416) 469-0188
(direct), (416) 420-4538 (cell), E-mail:

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