Investment dealers to ask for changes in tax rules

A representative of Canada’s junior mining sector says he fully supports a recent request by the Canadian investment community for changes in the federal tax system. In a recent submission to the federal government, the Investment Dealers Association has asked for the proportion of capital gains from share transactions subject to income tax to be reduced to 50% from 75%.

The IDA says the reduction is necessary because changes in the tax system including the complete withdrawal of the $500,000 Lifetime Capital Gains Exemption has discouraged individuals from making equity investments.

Further tax reform measures have also acted as an impediment to small investors who were driven out of the market by the 1987 crash, the IDA says.

While the IDA doesn’t refer specifically to the mining sector, it says a lower capital gains tax rate on common and convertible equity would give smaller companies a better chance of raising equity capital on the public markets.

Tony Andrews, managing director of the Prospectors and Developers Association of Canada, says he fundamentally agrees with what the IDA is asking for. “But we don’t think the changes will come about unless there is a change in government,” he said.

According to Andrews, Finance Minister Michael Wilson, is too single minded in his determination to reduce a deficit of $380 billion to consider any major tax reductions.

However in its proposal the IDA says the much higher capital gains tax rate under tax reform gives Canada the dubious distinction of taxing investment gains more heavily than any other major industrial country.

It says the reduction it is asking for would achieve an effective capital gains tax rate which would compare favourably to the tax rate on dividends for blue chip and dividend-paying corporations.

As Canada is also the only country with a higher tax rate on capital gains than dividends, capital has shifted to dividend-paying equity of larger corporations and away from riskier non-dividend paying equity of new, small and regional enterprises, the IDA says.

As a result, trading by individual investors now accounts for about 15% of total share trading in the market place, according to the IDA.