No one could have predicted the scale at which many of Canada?s largest corporations would use a tax policy intended to benefit Canadian pensioners, in order to avoid paying any corporate taxes. While the Conservative Government was forced to close the door to new tax-free income trusts this week, we opened the door wide to major tax breaks for Canadian seniors.
We had to act decisively to preserve tax fairness and the very foundation of Canada?s system of taxation. We?re talking about the money that pays for our healthcare and education systems, our social programs and our roads, among other essentials.
The continued conversion of Canada?s biggest, most-profitable companies, including Telus and BCE, to income trusts would have resulted in billions of dollars in less revenue for the federal and provincial governments to invest in these programs. Equally alarming, if these corporations don?t pay their share of taxes, the tax burden shifts to hardworking individuals and families.
The income trust situation changed dramatically since we formed government. This year alone there have been almost $70-billion in new trust/tax avoidance announcements. Compare that to just $18-billion last year. This situation is wrong and it is not fair for Canadians. In Budget 2006 we tried to correct the abuse of income trusts but it didn?t work.
There is no question this was a tough decision, especially knowing that the distribution tax on publicly-traded income trusts announcement would deliver an immediate financial blow to many Canadians. However, a responsible Government must look at long-term consequences. It cannot sit and do nothing while our country?s economy is at risk ? whether there is an election on the horizon tomorrow or in two years time. A responsible Government must put the best interests of the nation first, which includes the future of those very investors affected.
For income trusts that already exist, the tax measure will not take effect until 2011, giving them and their investors four years to adjust. In addition, the general corporate income tax rate will be cut one-half percentage point as of January 1, 2011.
During the election campaign, we committed to protecting seniors and we have acted to do so. The good news that I am very proud to pass on is that we have implemented alternative tax solutions to greatly benefit pensioners. First, we have increased the age amount by $1,000 effective this past January 1st, 2006. This will provide tax relief for low and middle-income seniors.
It gets better. Our Conservative Government has implemented income-splitting for seniors beginning this coming January 1, 2007. These two measures will significantly reduce pensioners? tax burden. This is on top of our Budget 2006 initiative that doubled the amount eligible for the pension income credit.
Ultimately, these tax fairness initiatives will restore balance in the federal tax system and create a level playing field for income trusts and corporations. The Conservative Government believes that good government and good policy means being focused, decisive and ethical. It?s called leadership and it?s something we?ve lacked in this country through 13 years of Liberal rule.