Tax policy, as it applies both to mutual funds and individual investors, is an important area of IFIC comment and advice.
IFIC works with its members to develop positions on tax policy and technical issues for submission to federal and provincial governments in Canada. We serve as a resource for tax officials seeking to better understand the impact on the fund industry and investors of specific tax proposals.
IFIC believes that tax policy should not provide one financial product with an advantage over another. For example, because of the way they are structured, mutual funds carry much higher level of GST/HST than other financial products. And because the tax is passed on to the investor it is a tax on savings – one that we are working to have reduced.
IFIC Letter to Finance (A. MacLean) on Amendments to Loss Restriction Event Rules in Bill C-43 (October 31, 2014)
IFIC is encouraging a government review of the GST and HST treatment of financial services.
Mutual fund holders pay four to five times more GST or HST per $100 of value-added than owners of GICs, equities, bonds and other non-fund financial vehicles.
Canada is an outlier compared to most of the more than 140 value-added tax (VAT) jurisdictions, effectively taxing rather than exempting mutual funds. Canada is also the only one of these countries applying federal and multiple provincial rates of tax, adding needless and costly complexity.
While sales tax harmonization is economically desirable in principle, sales tax legislation should be amended to levy the GST and HST on financial products and services in a way that is fairer to investors, economically neutral and administratively efficient.
Submission to Federal Government (Finance Canada - Chief L. Kottachchi) - Follow-up to August 10, 2010 Joint Meeting (August 26, 2010)
Submission to Federal Government (Finance Canada - Chief L. Kottachchi) - Comments on Draft Regulations and Second HST Backgrounder (July 30, 2010)
Submission to Federal Government (Senate Standing Committee on National Finance) - Clause 55 of Bill C-9 on GST Application (July 9, 2010)
Submission to Federal Government (Ministry of Finance) - Comments on “Financial Institution Rules for the Harmonized Sales Tax (HST)” Backgrounder (June 8, 2010)
Backgrounder - Proposed Changes to the Application of the Harmonized Sales Tax to Financial Institutions
In its March 2013 budget, the federal government announced changes to prevent the use of financial arrangements involving derivatives contracts that allow for the character conversion of ordinary income to capital gains. The changes came into law with the passage of the budget bill and will affect some Canadian mutual funds that promote the re-characterization of income to capital gains as a significant feature.
Unfortunately, there was no opportunity for stakeholders to provide comment or input into this change before its announcement. However, IFIC staff have been meeting with officials at Finance Canada to inform them of the issues that need to be considered to create a manageable transition plan.