The federal Liberals are offering an alternative to the government’s proposed plan to eliminate income trust tax leakage.

The Liberals are proposing that the government repeal its planned 31.5% tax on trusts and replace it with a 10% tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately with the revenue shared equitably with provincial governments.

It suggests that its plan could return as much as two thirds of the losses suffered by investors in the wake of the Conservatives’ proposed plan.

The Liberals say there are four main policy objectives underlying its plan: minimizing the loss of savings for Canadians who invested in income trusts; preserving the strengths of the income trust sector, notably a high-yield instrument for savers and for the energy sector; creating tax fairness by eliminating any tax leakage caused by the income trust sector; and, creating tax neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes.

It also proposes that the ban on new trust formations be continued, but that the government should commit to considering representations from sectors which can conform to the policy objectives listed above.

It says that the proposal has already received support from Gordon Tait, an analyst with BMO Capital Markets, who had previously told members of the Finance Committee that extending the phase out period to 10 years would likely return one-third of the investors lost savings.

“This new proposal would likely return at least of two-thirds of the losses experienced by the holders of income trusts after the October 31 announcement,” said Tait. “It would also ensure that Canadian investors continue to have a high-yield investment vehicle available to them.”