It's hard for a government to afford dramatic measures to cut taxes and help savers and investors when it's running a big deficit, but we can always plan for the future.
The Conservatives did that Monday by making an election promise to introduce income-splitting for parents with children under the age of 18 after the budget is balanced in four years (at least that's the projection). This would lighten the tax load for families by allowing a higher-income spouse to transfer up to $50,000 in income for tax purposes to a lower-income or stay-at-home spouse.
The Conservatives say close to 1.8 million families would save an average $1,300 per year, which is tangible tax relief and of far more significance than any personal finance measures announced in last week's budget. But income-splitting for families is also targeted tax relief that leaves out seniors, families with older kids, single parents and youths who are struggling to pay for a postsecondary education.
Here's a wish list of measures to benefit these groups and more. All federal parties should feel free to adopt them now for the day when they're affordable:
Eliminate the GST on mutual funds
Mutual funds are the investment of the masses, with upwards of $660-billion in total assets. Rich people do not buy funds as a rule, but families of all types invest in funds as a way of saving for retirement and their children's education. Heck, even seniors use funds.
All of these groups stand to make higher returns if Ottawa stopped requiring mutual fund companies to charge the goods and services tax on the fees investors pay to own funds. Remember, fund fees (with GST folded in) come off the top of fund returns. So if you remove the GST, investors will make a little more.
The Investment Funds Institute of Canada estimates that in 2008, the GST cost investors across the country $567-million annually. The cost to investors would be much higher today, not only because there's a lot more money invested in mutual funds but because the GST has metastasized into the harmonized sales tax in some provinces. Remove the GST, and the HST should fall away, too.
Fund fees are high in Canada by global standards, and it's up to the fund industry to do something about that. But government can help, too, by eliminating the GST on fund returns. The savings go right into the registered retirement and education savings plans of the nation.
Raise the age when RRSPs must be converted into RRIFs
The rules for registered retirement savings plans and registered retirement income funds lag way behind the changing retirement dynamics in this country. People are going to be working longer, both for lifestyle reasons and to supplement their retirement savings, and yet they're going to be bound by rules conceived in the old Freedom 55 era.
The age when you have to convert an RRSP into a RRIF was raised to 71 from 69 in the 2007 federal budget. A further increase to 75 seems sensible. An additional benefit of making this change is that people would be able to contribute to RRSPs longer.
You need earned income to contribute to an RRSP. We're going to see more seniors with earned income in the future - why not let them use to it to build up the savings they'll rely on as they live the 90-year lifespans we'll increasingly see?
Speaking of long lifespans, they also argue in favour of reducing the rate of mandatory minimum withdrawals RRIF holders must make each year.
Make RESP contributions tax-deductible
Liberal MP Dan McTeague got some attention a few years ago when he introduced a private member's bill that would have allowed contributions to RESPs to have the same tax deductibility as money put in RRSPs.
What was a good idea back then is even better now, with tuition fees seemingly on an unstoppable rising trend that can leave students with tens of thousands of dollars in debt. RESPs are a no-brainer way to save for a child's postsecondary education because of limited matching of contributions by the federal government. Making contributions at least partially tax-deductible would be an additional incentive for parents to increase their currently modest level of RESP usage.
Students certainly have to take some responsibility for their own educational costs, and that may mean borrowing money. But it's a bit ironic for us all to be comfortable with students piling on debt at a time of growing consensus that Canadians as a group owe too much.
The Investment Funds Institute of Canada prepared this example of how much tax applies on the fees investors pay to own mutual funds.
$10,000 in a standard Canadian equity fund
Management and operating fees charged by your fund company
Annualized cost of fees
Cost of paying GST on fees at 5%
Cost for an Ontario investor paying HST at 13%
Management expense ratio for the Ontario investor
MER for investors who just pay GST on fund fees
Note: This chart is just for example purposes. Fund companies have typically blended their fees for HST and non-HST provinces into a single national MER
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