In an August 5 statement, the IFIC submitted to the House of Commons Standing Committee on Finance its recommendations for inclusion in the 2017 federal budget, including ones that would impact taxation on mutual funds and opportunities for Canadians to open Registered Education Savings Plans (RESPs).
Tax relief for middle-income Canadians through GST/HST reform
The first major prescription the group puts forward relates to mutual funds, which they note are taxed differently compared to other financial services.
“This anomaly is the result of the way in which funds are structured, and of a failure by the 1991 architects of the GST to recognize and address the anomaly,” the statement explains.
The unique structure of funds, which includes the authority to hire third-party firms for various custodial and management purposes, is meant to safeguard investors’ assets. However, since investment funds are not entitled to recover GST/HST paid to the fund manager, it ends up as an unseen cost to investors in such funds.
“IFIC is asking that the federal government support Canadian savers by qualifying funds for a 100% rebate of the GST paid, consistent with how other financial services products are taxed,” the statement reads. A pension-type rebate equal to 33% of the GST paid by funds is also put forward as an alternative, in case revenue considerations make a full rebate unfeasible.
Increasing education savings for economic growth
The release also advocates for measures to increase education savings to help Canadians pay for post-secondary education.
“A significant barrier to the use of existing programs is low awareness of the existence of RESPs and the availability of Canada Education Savings Grants (CESG) and Canada Learning Bonds,” it points out, suggesting that funding be set aside for a joint awareness campaign that can be spread via federal and provincial channels as well as through providers, including advisors.
It also recommends elimination of certain outdated rules, such as the 16/17 year old rule that limits CESG for older teenagers, yearly maximums for CESG, and the $5000 payment limit for the first 13 weeks of the Education Assistance Plan (EAP), which it says “may create disincentives for some Canadians to opening an RESP”.
RESP and CESG contribution limits were also criticized, as they have not been increased since their inception in 1998 while average tuition fees in Canada have risen from $1464 in 1990-91 to $6348 in 2012-13. To address such gaps between savings and expenses, the statement says “the [CESG] lifetime grant maximum should be increased to $9000, and the $500 annual limit on the matching [CESG] should be removed, with a mechanism for regular ongoing review and adjustments for inflation and tuition increases.”
Other recommendations were also made, which can be read in the full release published on the IFIC website.
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