George Kesteven, President of the Canadian Association of Income Funds (CAIF), rejected the federal 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.

Kestevan appearance before the House of Commons Finance Committee today.

“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 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,” 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. Kesteven said the government’s tax leakage figures have been “grossly exaggerated.”

“To date, no clear, credible, or consistent data has been released by the Department of Finance to prove its claim,” Kesteven told the committee members.

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.

“The reality is that there is no tax leakage,” said Kesteven.

Stating that the government used “a chainsaw instead of a scalpel” on the income trust sector, 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.

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 exemptions.

“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 Kesteven.