In response to GoodaleIn response to Mr. Goodale's interview on ROBtv. He stated that he wanted a fair playing field for all types of investors. These are my observations:
Let's say company XYZ @ $10.00 has a dividend of $0.40, Ottawa would have collected $0.10 in corporate tax(20%). The gross up is $0.50.
Cdn. Investor (at the lowest tax level of 16% Fed. + 10% AB.) = 26% - 13% (dividend tax credit) = 13% x $0.50 = $0.065 + $0.10 (corp. tax) = $0.165 in total taxes.
Foreign Investor only pays a with holding tax of 15% x $0.50 = $0.075.
So what's not fair? Not only is the Cdn. investor taxed twice but also on income not received. To correct this the dividend tax credit should be equal to the corporate tax: 26%-20% = 6% x $0.50 = $0.03 +$0.10 = $0.13. The Foreign Investor should pay a with holding tax of 26% x $0.50 = $0.13.
Let's say company XYZ converts to an Income Trust, XYZ.un. By issuing units @ $10.00 paying a distributions of $1.00 ( paying off debt and no corporate tax). Increase its' market cap by 2 and doubling the tax base.
Cdn. Investor pays 26% x $1.00 = $0.26.
Foreign Investor only pays the with holding tax of 15% x $1.00 = $0.15.
So what's not fair? Certainly not the Cdn. Investor who now only pays one tax. Foreign Investors should be paying a with holding tax of 26% x $1.00 = $0.26. Mean while Ottawa has double its' tax base and revenues. The only tax lost is with the Foreign Investor on both accounts. Who else looses the Banks because of the paying down of debt by Trusts. Who owns Trusts? All types of investors from retail, institutions, to pension plans (yes even CCP which everyone). So does Ottawa want to double tax or just once equally? As a reminder Foreign Investors don't vote.