C.D. Howe calls for numerous tax changes

(February 16, 2005) The C.D. Howe Institute wants Ottawa to abolish the capital gains tax on charitable donations. That’s just one of many recommendations included in the Toronto-based researcher’s annual shadow budget, released on Wednesday.

The tax on capital gains applied to donations of selected assets to both private and public foundations and other charities should be eliminated, the shadow budget states. “Establishing basic provisions to guard against self-dealing will set the stage for an end to the discrimination that currently exists in the treatment of certain donations to private versus public foundations.”

The institute also calls the federal government to raise the basic personal and spousal income tax credits to $10,000 and $8,000, respectively, beginning in 2006, and to index those thresholds to wage growth in future years.

The lowest personal income tax rate should be cut by 1% in 2006, and all rates should be reduced by a further 1% in 2007, the researcher adds.

For retirement savers, the government should immediately introduce tax pre-paid savings plans (TPSPs), an idea C.D. Howe has championed for years. Ottawa has yet to act on the proposition, although it has been briefly mentioned as a subject for further study in the last two federal budgets.

“By protecting income in these plans from federal means-testing, the government also hopes to encourage provinces to protect income from, and assets in, these plans from provincial means-testing, so lower-income Canadians can save in TPSPs without fear of losing such benefits as subsidies for provincial drug plans and long-term care.”

C.D. Howe also wants Ottawa to raise the age at which Canadians must convert their RRSPs to RRIFs or annuities (it’s currently 69). “This budget proposes to move the age at which RRSPs must be wound down back to 70 for 2006 and raise it by one additional year in 2007, 2008 and 2009.”

The shadow budget also asks for a removal of the 30% foreign content limit in registered savings plans, which the institute says increases risk and lowers returns to small savers, and calls for the elimination of the lifetime capital gains exemption, “an arbitrary device that has outlived its usefulness.”

Labour funds would also take a hit under C.D. Howe’s proposal, with the institute suggesting that the federal and provincial tax credits for such funds has promoted high management fees and low investment returns. “This budget therefore reduces by half the federal labour funds credit, effective immediately, and eliminates the credit effective January 1, 2006.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com