Industry weighs in on PRPPs, red tape

Submissions made by the Canadian Bankers Asso-ciation, Canadian Life and Health In-sur-ance Association Inc., the Investment Funds Insti-tute of Canada, the Investment Industry Association of Canada and the Portfolio Management Association of Canada all urge federal Finance Minister Jim Flaherty to go ahead with PRPPs.

In other areas, the CLHIA recommends that Ottawa consider revised taxation of corporate groups. Such changes are of “particular significance” for the financial services industry, the CLHIA’s submission says, because the high degree of regulation in that sector results in business activities being divided among several related corporations; a group taxation regime would bring Canada closer to other G8 countries.

The recommendations include:

PRPPs. All financial services groups urge that PRPPs be structured to appeal to employers, employees and the institutions administering them, with the goal of wide uptake of PRPPs.

Most of the submissions favour a system in which employees are automatically enrolled in such plans, with their contributions automatically increasing over time. The system would not be mandatory but would require that employees take the initiative to opt out or keep contributions at a lower level. Research has established that participation and the level of savings is much greater when these features are present.

Most industry associations also recommend that PRPPs be harmonized across the country. Harmonization is always tricky, but it’s particularly important for PRPPs because of the importance of portability when moving between provinces. Different regulations between provinces could make PRPP fees higher.

Promoting Investment. The IIAC is concerned about the ability of small and medium-sized businesses to raise capital. IIAC president Ian Russell says his group has long recommended lowering the capital gains tax to improve access to capital. This year, the IIAC also recommends extending the use of flow-through shares to non-resource sectors, such as biotechnology and high-tech.

International Issues. Several industry groups have expressed strong concerns in areas dealing with cross-border investment flows. The CLHIA wants Canadian companies to have greater access to loans and surplus funds held in their foreign subsidiaries.

PMAC recommends that the list of foreign stock exchanges available to RRSP investors be expanded to include more outside North America and Europe.

Sales Taxes On Financial Services. PMAC’s submission wants consumption taxes such as the HST and its equivalents to be removed from the costs of investment-management services, arguing that the management of savings does not amount to consumption.

IFIC’s submission argues that investment products such as mutual funds have long been taxed at higher rates than “non-fund financial products” and urges that sales taxes on investment funds be subject to a low joint federal/provincial sales tax across the country “consistent with the treatment of other investment products.”

Long-Term Care. The CLHIA warns that many Canadians are unrealistic about the costs of long-term care. The group’s submission says the government should provide more tax and financial incentives to purchase LTC insurance or set up an RRSP-type vehicle to help taxpayers meet these needs.

Tax-Free Savings Accounts And Personal Taxes. The IIAC welcomes the Tory election promise to raise the maximum annual contribution for TFSAs to $10,000 once the federal budget has been balanced. The IIAC also recommends reducing personal income tax rates in the next phase of the government’s tax policy.

Income-Splitting. IFIC recommends permitting income-splitting at age 55 (vs the current age of 65) in cases in which the inves-tor does not have a typical pension and is relying on registered retirement income funds, pensions transferred to a locked-in plan and/or amounts transferred from RRIFs and locked-in income funds upon death to a spouse’s plan. This policy, IFIC says, would create more equity between the two groups.

Mutual Funds. PMAC continues to advocate reducing the minimum number of unitholders required to establish mutual fund trust status to 50 from 150, pointing out that when pension funds and group RRSPs invest — often, on behalf of thousands of employees — they are counted as single unitholders. Adverse tax results follow when a fund falls below the 150 unitholder threshold. The current rule, PMAC’s paper argues, also inhibits the creation of new smaller but innovative funds.

Regulatory Burdens. The CLHIA submission cautions about negative consequences of recent global accounting and regulatory changes and new compliance burdens created by recent U.S. efforts to compel Canadian financial services firms to report the holdings of their American clients.

The CBA is concerned that “too many [global] initiatives are being implemented within too short a time frame.”  IE