Targeted, specific tax incentives would help foster savings

The Investment Industry Association of Canada is calling on the federal government to stay on track with its deficit reduction plans, while also cutting the capital gains tax, and increasing the RRSP and TSFA contribution limits.

In its submission to the House of Commons Standing Committee on Finance published Thursday, the IIAC says that in its next budget the government “should continue with its plan to reduce the deficit through a measured course of expenditure reduction.”

However, at the same time, the submission also argues that the economy needs a boost through a reduced capital gains tax, and that the limits on tax-assisted private retirement savings should also be expanded to help foster savings.

While it he argues that fiscal restraint is warranted on the expenditure side, the submission also says that, “A catalyst to bolster business and investor confidence, accelerate business spending and promote long-term economic growth is urgently needed to complement a steady course of fiscal restraint. The time is right to implement targeted, specific tax incentives to achieve these goals.”

Specifically, the IIAC calls on the government to lower the effective tax rate on capital gains for common equity shares by reducing the inclusion rate.

“Lower capital gains taxes will encourage emerging Canadian businesses to list and offer shares on a Canadian exchange, and provide a liquid market for their shares, which in turn will spur further capital formation by making the financing process in Canada easier for business,” it says, arguing that the existing capital gains tax is a “major impediment to the supply of risk capital”.

The IIAC also calls for an increase the to contribution/deposit limits for RRSPs and TSFAs, saying that higher limits, “will give investors flexibility to recoup market losses in their portfolios and allow them to build savings more quickly.” And, it suggests that the minimum annual withdrawal requirements for RRIFs should be scrapped too.

It also calls on the government to implement the recommendations of the Task Force on Financial Literacy (which is due to report by the end of the year), particularly recommendations, “that identify and coordinate the many financial and investment literacy programs that already exist in Canada. Promoting linkages between financial entities and existing successful programs is an important first step towards a more financially literate population in Canada,” it says.

IE