BMO Financial Group today applauded Finance Minister Ralph Goodale’s decision to cut taxes on dividends and not impose a new layer of taxation on income trusts or unitholders.

“By our yardstick, the Minister of Finance has come to the best public policy outcome, and for that he deserves credit,” said Yvan Bourdeau, president and chief operating officer of BMO Nesbitt Burns. “We believe the government’s action will help level the playing field between corporations and income trusts.”

In its submission to the federal government’s consultation, BMO said well-functioning capital markets are the key to economic efficiency and prosperity, and an even-handed tax regime is a prerequisite. “This new policy should enhance efficiency, competitiveness, integrity and stability in capital markets and economic and financial systems,” said Bourdeau.

“The real problem with the tax system was not the tax treatment of FTEs, but rather the discriminatory tax treatment of income earned in public corporations that is distributed as dividends,” added Rick Egelton, senior vice-president and chief economist, BMO Financial Group. “The double taxation of corporate earnings – once in the hands of the corporations and a second time in the hands of shareholders when they receive dividends – has been a fundamental source of unfairness in the system.”

One of Canda’s largest pension plans also welcomed the the dividend tax cut.

“We have been advocating for some time for an integration of personal and corporate income tax through the lowering of corporate tax and raising of dividend tax credits on common shares,” said Jim Leech, Ontario Teachers’ Pension Plan senior vp. Noting that this move does not benefit Canadian pension plans per se, he said “This will go a long way towards eliminating the current arbitrage between businesses organized as corporations and those organized in trust form.”

Leech added that Teachers’ is also glad to see that Goodale and his advisors appear to have listened to the concerns of the pension community to the issues raised in Finance Department’s consultation paper on income trusts.

The Ontario Teachers’ Pension Plan is an independent corporation
responsible for investing the $88 billion fund and administering the pensions of Ontario’s elementary and secondary school teachers.