New trade association prepares for launch

It’s not even up and running yet, but the IDA’s recently spun-off trade association has already identified several key tax issues as it prepares for an April 1 launch.

The new trade association will retain the Investment Dealers Association name, albeit with a new logo, and will be headed by IDA senior vice president Ian Russell.

“We’re one national trade association and we speak on behalf of all our members coast-to-coast,” Russell said in a recently-released progress report. “We will not only marshal industry opinion on regulatory and public policy issues, but provide leading and qualified opinions on financial issues and capital markets.”

The trade association will be headquartered in Toronto with several regional offices across the country. Those offices aren’t expected to be ready until at least May 1. The new association, approved by the IDA board last December, plans to outsource IT, human resources, as well as financial accounting and bookkeeping, but will use the IDA’s existing back office services in the meantime.

Russell says the group is already working on a number of tax-related issues, such as the Conservative’s proposal to eliminate the capital gains tax, as long as the proceeds are re-invested within six months. Few details have been released by the Tories, but Russell says the trade association believes the idea has “considerable merit and would ultimately help boost Canada’s slumping productivity and competitiveness.”

“However, it’s critical that the capital gains tax shelter be structured properly — possibly narrowing eligibility to certain asset classes such as financial assets — and ensure that the necessary systems are in place to monitor investment flows.”

The IDA is also concerned about Bill C-55, which proposed changes to Canada’s principal banking and insolvency statutes, including anti-abuse mechanisms that modify general exemptions for RRSPs from seizure. This includes a cap in the amount of savings that can be protected and a proposal to limit the protection only to locked-in RRSPs.

“The trade association believes that the proposed anti-abuse mechanisms are totally unnecessary and cannot be justified as a matter of broad policy or a cost-benefit basis,” Russell says. The IDA has submitted a formal request to appear before the Senate Banking Committee hearings on the bill.

The IDA is also warning tax officials on a snag related to older RESPs. A 20% tax was imposed on accumulated income payments in excess of a “reasonable amount” prior to 1990. Russell says the tax is regarded as unfair to RESPs set up before 1990 since no such tax existed then.

“Given that RESPs are required to be collapsed after 21 years, this would subject older RESPs to taxes under the current rules,” he says. “Moreover, RESPs initiated before 1990 experience strong growth, making the payout relative high and increasing the likelihood of taxation.”

The trade association’s recent submission to the CRA on this issue flags the potentially negative implications regarding this “troubling dilemma” and calls for a grandfather provision for earlier RESPs in order to rectify the situation.

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