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(August 3, 2006) The Ontario government announced Thursday morning that it will introduce legislation to create a new, enhanced dividend tax credit for Ontarians investing in Canadian corporations.

“We’re moving to a higher dividend tax credit rate as an important part of our overall plan to enhance Ontario’s investment climate,” says finance minister Greg Sorbara. “This plan would encourage more investment in Ontario corporations and better integrate our corporate and personal income tax systems.”

The proposal is intended to lower the effective tax rate on eligible dividends and bring provincial tax rates in line with effective tax rates on other forms of investment — notably, income trusts.

“We are responding both to the needs of Ontario investors and to federal changes,” Sorbara says. “Our proposal promotes investment while setting out a fiscally prudent approach to better integrating the tax system and enhancing Ontario’s prosperity.”

The combined federal-provincial income tax rate for most corporate income, other than small business income, is higher than 20%. As a result, dividends distributed to shareholders by large corporations can be subject to a combined corporate-personal income tax rate higher than that on income trusts.

The federal government is proposing to reduce income taxes payable on eligible dividends, which are paid from income subject to the federal general corporate income tax rate, by releasing draft legislation that would provide an enhanced gross-up for eligible dividends. The proposed 45% gross-up means the shareholder would include 145% of the dividend amount in their income. The federal tax credit would be approximately 19%, based on the 2010 federal corporate tax rate.

Ontario proposes to parallel the new federal gross-up and introduce a second, higher tax credit for eligible dividends, to be phased in over five years, starting at 5.13% in 2006 and growing to 7.7% by 2010.

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Pamela Wallin joins Gluskin Sheff board

(August 3, 2006) Gluskin Sheff + Associates has appointed Pamela Wallin, former Consul General to New York City, to the company’s board of directors.

Wallin is perhaps best known as for a stint as the host of CTV’s Canada AM and was the first woman to co-anchor a nightly newscast. She has served on the board of governors at the University of Waterloo, the board of directors of the Ontario Cancer Research Network and the boards of several other professional and charitable organizations.

“We are extremely pleased to welcome Pamela Wallin to the company’s board of directors,” announced chairman and CEO, Gerald Sheff. “Her knowledge and experience will make a valuable contribution to both the board and to the management team.”

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CRA and IRS issue warning about cross-boarder tax scheme

(August 3, 2006) The Canada Revenue Agency and the United States Internal Revenue Service issued a statement today saying the groups are making “significant progress” in unravelling an abusive cross-boarder tax scheme.

The arrangement involves investors purchasing what appears to be a high-yielding offshore investment through an offshore corporation or foreign bank account using proceeds from retirement fund withdrawals. Investors are also being encouraged to make purchases through tax refunds, which have been improperly generated by claiming natural resource and industry investment losses.

The scheme involves hundreds of tax payers and tens of millions of dollars in improper deductions and reported income from retirement account withdrawals. Promoters identifying themselves as representatives of investment clubs or associations are targeting middle to high-income individuals and marketing the scheme on both sides of the border.

The CRA explained that the arrangements often have excessive promoter fees and, in many cases, the offshore investments do not produce the expected results. As well, client tax liabilities could increase and the assets could be susceptible to appropriation by the promoter.

Although the statement says promoters and participants engaged in abusive schemes have routinely been subjected to strict enforcement action by both administrations, the agencies provided few details about any successful enforcement actions.

The Joint International Tax Shelter Information Centre, based in Washington, DC, was established in 2004 by tax administrators in Australia, Canada, the United Kingdom and the United States.

“The real-time exchange of information, including the identities of promoters and hundreds of investors has been critical to this investigation,” says IRS commissioner, Mark Everson. “JITSIC is emerging as an important part of efforts to combat abusive schemes.”

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BMO acquires bcpbank Canada

(August 3, 2006) BMO Financial Group announced Thursday that it has signed an agreement in principle to purchase bcpbank Canada, a full-service chartered bank owned by BCP International.

The bank has an established reputation for providing financial services and international remittance services to Toronto’s extensive Portuguese-Canadian community. Most of the bank’s front-line employees are proficient in the Portuguese language, enabling them to assist 28,000 customers in their language of choice. The bank operates a network of eight personal and commercial bank branches, seven of which are located in the Greater Toronto Area.

Under the agreement, BMO will pay $41 million to BCP.. As of December 31, 2005, bcpbank had a net book value of $26.7 million. The transaction is expected to close later this year.

Frank Techar, president and CEO of personal and commercial banking at BMO, says “this acquisition reflects our commitment to continue to invest in our core Canadian retail banking franchise and provides us with a good opportunity to deepen our relationship with this important local community.”

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