In a pre-budget submission presented today, Joe Oliver, president and CEO of the Investment Dealer Association of Canada, called on the federal government to raise RRSP limits, deliver wide ranging tax cuts, and provide clearer tax treatment for mutual fund lending.

The IDA recommends raising the RRSP contribution limit to a level of $27,000 over the next two taxation years. Last year, the government increased the limit from $13,500 to $14,500, and promised to raise the limit to $18,000 over the next three years.

“These new levels still fall well short of levels required to maintain adequate income support in retirement for many Canadians, and compare with current levels of $61,600 in the United States and a minimum level of $38,270 in the United Kingdom,” Oliver said.

Oliver also said the IDA would support the introduction of a Tax-Preferred Savings Plan, but not if it delays improvements to the RRSP program.

On the tax side, the IDA recommends reducing the capital gains inclusion rate from 50% to 25% on shares of small publicly-listed companies. Oliver noted that current tax relief for small business is skewed towards private companies, and complained that this does nothing to promote public participation in Canadian junior public markets, or keep Canadian junior companies in Canada.

At the same time, the IDA would like to see an increase to the dividend tax credit. “Dividend-paying stocks are vital to the revitalization of our equity marketplace, since these are the stocks that will first attract the interest and participation of retail buyers,” Oliver said, noting that the U.S. is lowering the dividend tax rate from as high as 39% to 15%. “The tax environment for retail equity investors in Canada is more onerous than in the United States, a factor which will slow the resumption of investor participation in these markets,” Oliver said.

The IDA is calling on the government to cut the effective taxation of dividend income in Canada to rates similar to U.S. rates through an increase in the dividend tax credit.

The IDA also recommends that the government lower corporate income tax rates and accelerate the elimination of capital taxes. It argues that the currently-planned five year phase out of the federal Large Corporations Tax is too long. It recommends that the government reduce corporate income tax rates further to levels more comparable to those in the United States, and accelerate the planned elimination of the LCT.

Finally, the IDA is seeking clarity of the income tax treatment for the lending of mutual fund trusts. It notes that the Department of Finance has recommended that mutual fund trusts be treated as “qualified securities” for purposes of securities lending arrangements, but it has yet to recommend changes to the income tax treatment of compensation payments received by lenders or made by borrowers of these units.

“Since that date the IDA has consulted extensively with the Department on the tax treatment of compensation payments, and has submitted recommendations on possible amendments to the Act,” Oliver said. “It is urged that the government bring stability to this important sector of the Canadian capital market by making the appropriate legislative changes to the tax treatment of compensation payments on loaned trust units at the earliest possible date.”