Stop tax on US mutual funds/ETFs held by Canadians
Messages
Date: 14-Aug-2000 - 8:41 PM
Subject: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Stop the proposed tax changes to US mutual funds and ETFs held by Canadians

We are a group of ordinary, law-abiding, tax-paying Canadian investors. We have just discovered that buried in the draft legislation pertaining to Taxation of Non-Resident Trusts and Foreign Investment Funds is a new regulation that will effectively make it impractical for Canadian investors to own US-based mutual funds and exchange-traded funds (ETFs -- e.g. SPYs, QQQs, iShares.)

These changes will affect you even if you hold these securities in a Canadian brokerage account!

We believe that the inclusion of US-based investment funds in the legislation is unfair, unwarranted and unnecessary. While we agree that the Government of Canada should take steps necessary to stop tax evasion using offshore trusts and related mechanisms, if this legislation is enacted we will be inadvertently caught in a punitive tax net that's intended to catch law-breakers.

We urge you to contact the Minister of Finance and your Member of Parliament to request that this legislation exclude US-based investment funds so that we all can continue to benefit from these securities.

For more information about the new legislation and what you can do to about it, please see Stop the proposed tax changes on US mutual funds and ETFs held by Canadians

Note: You must act before the September 1st, 2000 deadline for submission of comments.

Bylo Selhi

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Date: 14-Aug-2000 - 10:29 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Warren

Bylo, an awesome post and link - I for one will send in my 2 cents worth.

BTW, as you know US Mutual funds are not now taxed the same as Cdn funds since a distribution by a non-res fund is taxable as ordinary income, and no reduction is allowed for any part of the distribution that might be capital gains.

In addition, the T1135 now requires (and has for a couple of years) disclosure of foreign assets such as non-res MFs and shares of foreign corps where the ACB is greater than $100K (Cdn).

The point is, if they tax MFs and Webs etc on annual growth, can shares of Microsoft or others be far behind?

Warren.

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Date: 14-Aug-2000 - 10:40 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Warren,

Nice to see you back in Boomerland.

the T1135 now requires (and has for a couple of years) disclosure of foreign assets

That, and IRS 1042 slips (equivalent to T3/T5s), and the withholding tax, etc. provide ample "incentives" for Canadians to report their US investments and the income they earn on them. The new tax regulations will simply penalize all honest tax payers in a (very likely fruitless) attempt to catch a few cheaters.

if they tax MFs and Webs etc on annual growth, can shares of Microsoft or others be far behind?

Yet another reason to join the protest even if you don't own any US investment funds. BTW, US ETFs, even if held in a Canadian brokerage account, will be taxed on annual growth under the new legislation. It's just a small step to including US stocks in the list :-(

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Date: 14-Aug-2000 - 10:45 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Shakespeare

OK, Bylo, Ah done my duty.

I had to download a new fax program from TUCOWS first - I haven't needed to use a fax program for over a year and my old one had expired.

BTW, I didn't like the format of the letter - it put double-spaced lines in the addresses and Wordpad won't let me adjust that. So, I just saved it as text - the fax program wanted a text file anyway.

Word (and Excel) cost money and I don't need them often enough to justify the expense. (I have on old version of Lotus, v.4, that is adequate for my spreadsheeting, although it won't let me create graphs for posting).

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Date: 14-Aug-2000 - 11:02 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Good work, Bylo! There should be a news story on this by me in Tuesday's F.P. (main section C, not the column in FP Investing. Also, probably, a column in the other national daily.

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Date: 14-Aug-2000 - 11:30 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Boomerbucks

This story should get wide play Tuesday. It's here tonight on both TWB and TFL (Bylo posted simultaneously) and likely N.P. and Globe Tuesday. Far as I could tell, the story first developed right here at TWB on the "ETFs here to stay" post created by George$ back in February or March. Let's not let it die; we have till Sept. 1 to tell the government how we feel and need to move this story off the web and business pages on to TV and radio. Start with the Bylo link from his post at the top of this thread. There is an e-mail to send input to Paul Martin. We let them mow us down on the GST and also the taxing of strip bonds even though no real interest is paid yearly. If Finance/CCRA are going to force us back into high-MER international equity funds from the Canadian mutual fund industry, that will be a giant leap backwards for do it yourselfers who have done enough research to realize ETFs are the products they were looking for. This is also an interesting test case for the power of using the web to mobilize communities. And thanks to Bylo, Tony Humble et al, TWB does appear to be a powerful emerging community. Let's find out if we can effect some real change!

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Date: 15-Aug-2000 - 12:00 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Bylo, thanks for going the distance with this.

It is hard to beleive that after the investment world has come so far that it could be set back 10 years with a stroke of the pen.

We have had ETF's for some time and there is no way this will pass without a real fight from us and many others.

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Date: 15-Aug-2000 - 12:26 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: lawnjockey

bylo

Following your suggestions, in the past couple of years I have done very well with low-cost US mutual funds purchased on line with TD Waterhouse (US). So now I may be forced to sell some of them to pay tax on the unrealized gain. Do I thank you or curse you? :-)

Taxing unrealized capital gains certainly provides an intriguing new source of revenue.

Market Value Assessment on residential property went part of the way --your home rises in value, you pay higher property taxes. Imagine the possibilities when you apply that to rising home prices in hot growth areas. Naturally, CPI adjustments will be omitted.

Now, to work on those faxes and E-mails!

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Date: 15-Aug-2000 - 5:40 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: George$

It gives one a good rush to be part of this worthy effort. [Shakespeare's Henry IV scene preceeding the battle of Agincourt comes to mind, the inspiring words with "we merry band of men .... " or something like that. Let's hope this effort has similar success.]

Once more 'thanks Bylo' for leading by example. And what an example!

I will send in my letters and ask my spouse to do likewise with a variation. I wish I could do more.

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Date: 15-Aug-2000 - 6:41 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

I would be remiss to not acknowledge and thank cbg1, George$ and Jon for their considerable efforts of in helping to get this material put together and out on the web. We only found out about it last week, but before we could launch the campaign, we needed to verify that these new regulations would indeed affect ordinary investors. Then yesterday someone must have let Mafiaboy out on bail, because my website which is hosted by Yahoo, was up and down all evening.

Jon, I just read your column (not yet on the web).

Some comments:

(a) The headline (which I presume you didn't write) simply sucks, because it's domestic investors, not offshore ones, who will be affected. "Offshore investors to fight changes in capital gains rules."

(b) The emphasis is on ETFs, yet also affected are US mutual funds -- including the low cost ones from Vanguard -- will also be caught in the trap.

(c) The double whammy is worse than stated. If you want to avoid the annual tax on appreciated gains, then you could sell your funds/ETFs, but that would incur tax on the capital gains that appreciated during the time you owned them. Whether you submit to the new tax or bail out, you get hit with a potentially monstrous tax bill.

Here's Carrick's column in the G&M Proposed tax on index units casts too wide a net which also misses points (b) and (c).

Seems like a letter writing campaign to the editors of the FP and G&M is in order.

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Date: 15-Aug-2000 - 8:38 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Jon, I guess you will just have to do a follow up article about the "David vs. Goliath" campain to fight this legislation. Rumour has it Rob C. is working on another story already :-)

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Date: 15-Aug-2000 - 9:05 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Shakespeare,

I have on old version of Lotus, v.4, that is adequate for my spreadsheeting, although it won't let me create graphs for posting

I just tossed out a couple of old (but newer than your's) Lotus SmartSuite CDs. I think I may still have one at home that I'd be glad to give you.

lawnjockey,

now I may be forced to sell some of them to pay tax on the unrealized gain. Do I thank you or curse you?

Neither. We commiserate together :-(

Jon,

Could you please get the NP's webmaster to post the story on their website (or e-mail me a copy) so that I can include it (along with the competition's story) on my website.

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Date: 15-Aug-2000 - 10:01 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Technically, the piece was a "news" story rather than a column and I don't yet see it on NP Online. Here's the version that actually appeared. I'll tack on some quotes from Richard Croft that were edited out for space:

It's on top of page C3, Tue. Aug. 15 Financial Post:

Headline: Offshore investors to fight changes in capital gains rules

Deck: Double whammy on ETF investments not fair, they say By Jonathan Chevreau Proposed federal legislation aimed at combatting offshore tax evasion has triggered a protest from legitimate investors in U.S.-based mutual funds and a popular new alternative called exchange-traded funds (ETFs). Sophisticated Canadian do-it-yourself investors have been gravitating to passively managed baskets of foreign stocks that trade on stock exchanges like individual stocks. They do so because management fees are much lower than the actively managed foreign equity funds sold by the Canadian mutual funds industry, but also because turnover and capital gains taxes are low if they aren’t frequently traded. The federal Department of Finance announced draft Legislation on the Taxation of Non-Resident Trusts and Foreign Investment Entities on June 22. In a move that just happens to be in the mutual fund industry’s interests, the ministry proposed to levy capital gains taxes once a year even if the ETFs weren’t sold (or the gains “realized”) - using a “mark to market” approach. This would preclude what investors in ordinary mutual funds or individual stocks currently enjoy: they pay no capital gains tax as long as they do not sell the securities and realize the gains. Instead, they pay tax on dividends payable and defer realizing (and consuming) their gains. Under the proposed legislation, investors would suffer a double whammy - not only paying annual tax on unrealized gains but would be taxed as income on 100% of gain, rather than the 67% inclusion rate normally levied on capital gains. Critics say it’s ludicrous that an investor who directly bought 20 individual Internet stocks would not have to pay capital gains taxes on unrealized gains. But that would happen to an investor holding an ETF basket of the same 20. Tax lawyer Blair Dwyer of Victoria., B.C., says the legislation is also inconsistent with the department’s earlier decision to permit certain ETF products like SPDRs to be held within Canadian registered pension plans and retirement accounts. A campaign to get Paul Martin, the Finance Minister, to modify the government’s stance has been orchestrated by do-it-yourself investor advocate Bylo Selhi, through a page on his Web site: www.bylo.org/usmfetftax.html Investors have until Sept. 1 to comment on the proposed legislation. The seeds of the problem were sown in the February, 1999, budget, which had proposals to tighten up regulations on the taxation of non-resident family trusts and foreign investment funds. Under the proposed changes, U.S. equity mutual funds and products like SPYs, QQQs, DIAs, WEBs, HOLDRs and iShares are included in the definition of FIFs. By requiring Canadian investors to pay income tax on the amount by which these securities increase each year, “this will effectively make the ownership of such securities impractical,” says Mr. Selhi. A ministry official confirmed the proposed legislation would cover such products. Originally, U.S.-based mutual funds were to have been exempted but that concession was lost when the department issued a press release last November. But the dominant ETF providers in Canada say they intend to fight. Gerry Rocchi, president of Barclays Global Investors Canada Ltd. says it will be submitting a proposal to Finance outlining its concerns. Financial Post jchevreau@nationalpost.com

Here's what Richard Croft had to say: If we understand the intent of the legislation, the government will once again be penalizing the Canadian investor who wants to hold a diversified globally diversified portfolio for the long term. A portfolio I might add, that was purchased with after tax dollars."

"This type of legislation will encourage frequent trading, which goes against the government's own plans for the Canada Pension Plan, where they intend to tap the financial markets using a passive investment approach."

"Once again the government has found a way to force Canadians to pay higher management fees in order to escape what amounts to disciplinary taxation."

"If we are not able to persuade the government to put this legislation back where they found it - presumably buried under some large rock that was overturned by lobbyists - we will have allowed our elected officials to introduce a tax that discriminates against the small investor and that cannot be supported by any fairness standard."

"How can the government justify a tax that treats index based securities as an interest bearing asset, but will allow large institutional or individual investors the right to hold all of the securities that are in the index based security, and then tax that portfolio only when gains are realized, and then only as a capital gain or loss. We are dealing with apples and apples, with different tax treatments."

Richard Croft is President of Toronto based Croft Financial Group, An Investment Counsel Portfolio Management firm.

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Date: 15-Aug-2000 - 10:25 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Boomerbucks

This is bigger than some people and the newspaper editors realize. It affects for example, Canadians who invested in Warren Buffett's Berkshire Hathaway. I'm not sure about closed end funds but certainly ETFs like SPDRs, WEBs, etc. Also, anyone who owns U.S. mutual fund groups like Vanguard.

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Date: 15-Aug-2000 - 10:26 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Chuck

This really, really sucks.

Jon, as Bylo mentioned, please change that headline. I don't think of myself as an "offshore investor" just because I buy a few ETF 's on a US exchange.

I think this headline may cause many everyday folks to overlook the article as they will say "Offshore investors? That doesn't apply to me." We need every eyeball we can get to fight this thing.

I also wonder how much the insidious hand of the Canadian mutual fund industry is involved in all this. If this legislation passes, I wonder if Canadian based US index funds will undergo a "mysterious" MER increase.

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Date: 15-Aug-2000 - 12:03 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Goater

ETFs are probably one of the best things that have happened to individual investors. Lower fees, intraday trading, etc. - all things that likely have fund companies squirming. I'm taking a shot in the dark here, but my guess is that fund co's probably did a bit of schmoozing and lobbying and convinced Parlaiment to propose this tax.

I also don't think people fully realize what's going on here. They will have to pay taxes on any gains they make each year even if they haven't sold out. And they will be taxed as if the increase in investment value is regualr income. This proposed legislation should infuriate the average investor (consumer) and I highly recommend all those concerned write their MP ASAP.

By the way, the two week comment period is unusually short.

Just my $.02.

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Date: 15-Aug-2000 - 12:30 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Goater,

By the way, the two week comment period is unusually short.

The original announcement was in a Nov99 news release, then a 22Jun00 news release to announce the draft legislation and invite comments.

But who wudda thunk they'd bury this under a heading like "Proposals for the Taxation of Non-Resident Trusts and Foreign Investment Funds"?

And how many individual investors routinely read Dept of Finance news releases?

We only found out about it when Jon posted an e-mail from a CA who read Jon's ETF story in the FP a week or so ago.


BTW, I've updated the website so that y'all can now send faxes from e-mail using a free service at Univ of Toronto. See the web page for details.

And NormR is working on further automation. Stay tuned (but don't procrastinate.)

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Date: 15-Aug-2000 - 12:43 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

WOW, I was away for a couple of days looks like I stumbled into a big and potentially depressing stories unfolding. For what it's worth Bylo, I'd be willing to assist in anyway possible as long as the tasks are bit size enough for one or two people to undertake.

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Date: 15-Aug-2000 - 12:55 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: DanH

Boomerbucks, it's bad but not as bad as you think. The proposed legislation affects non-resident trusts. BRK is a corporation (not a trust) so it would not be affected.

I agree though, that this legislation makes no sense in the context of its widesweeping nature. The intent is to catch people trying to avoid/evade taxes. But it will catch those who, as Bylo has mentioned, are simply trying to build wealth in a cost effective manner and are more than happy to report all taxable income annually. This law does suck...big! However, mutual fund company execs and index fund providers in Canada must be thrilled since this legistlation, if passed, would give this already heavily protected industry even further barriers.

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Date: 15-Aug-2000 - 1:19 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: NormR

However, mutual fund company execs and index fund providers in Canada must be thrilled since this legistlation, if passed, would give this already heavily protected industry even further barriers.

Just as investors find an easy way to avoid paying 3% MERs the Fed sweeps in. Who says money doesn't buy access ...

Cheers, NormR

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Date: 15-Aug-2000 - 1:46 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

However, mutual fund company execs and index fund providers in Canada must be thrilled since this legistlation, if passed, would give this already heavily protected industry even further barriers.

Exactly. The only who have an interest in killing this are individual investors. Even the ETF sponsors don't seem particularly concerned. There's only individual investors like us who by our own actions can mount a protest.

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Date: 15-Aug-2000 - 2:02 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

The proposed legislation affects non-resident trusts. BRK is a corporation (not a trust) so it would not be affected.

I wouldn't be too sure. The Finance news releases talk about "investment funds and trusts." Carrick's piece adds further according to Finance "in which 50% or more of the assets are in securities."

IANAL, but I do own BRK shares, and as I understand it, a large chunk of what Warren owns on my behalf is shares in Coca Cola, Gilette, Disney, etc. -- and now even Shaw Cable (well at least that's Canadian.) Perhaps that adds up to more than 50%. I dunno.

Also, ETFs are structured differently. SPYs, etc. are UITs but iShares "Unlike many ETFs that are structured as unit investment trusts, BGIs are registered as open-end funds" ... "Like mutual funds, ETFs are structured as 'regulated investment companies.'" [from US-based Asset Management magazine]

And Vanguard's VIPERs will just be a different class of their existing mutual funds.

They may be some other big fish that get caught in CCRA's nets...

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Date: 15-Aug-2000 - 2:43 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

From B.C. reader K.W.: Dear Mr Chevreau

Your article in the National Post this morning on taxing ETF's was a shocker. I hope you pursue this issue. It was the first I had heard of it. It has to be one of the dumbest ideas I have ever heard. Large investors will get around it and small investors will be stuck. It will just transfer funds into mutual funds or encourage them to be hidden off shore. It will not raise any tax revenue since no Canadian investor will hold these anymore.

Please continue to report on this issue.

Thanks

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Date: 15-Aug-2000 - 2:45 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

From reader B.A.:

Thankyou for your article in today's Post. It is surprising that in a world where investors are asked to rely more and more on themselves to provide for their own retirement, a world in which global investment products are more available to the small investor than ever before, that our government should be taking steps to shut down attractive investment choices for us.

Keep up the heat on this issue

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Date: 15-Aug-2000 - 3:22 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Jon,

FYI:

Our office is in the process of drafting a letter for our clients to sign and forward to Ottawa. Also our association, CAFPA, which is a fee only organization patterned after the U.S.'s NAFPA will also be sending a letter to Ottawa on behalf of the fee only planners of Canada. And a message has been posted on the site requesting that members forward letters of displeasure to the Finance Minister.

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Date: 15-Aug-2000 - 3:44 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: green

I find it difficult to believe that the federal government would not exempt trusts like MDY, SPY, QQQ and iShares from what ever it is they are trying to do to stop Canadians from setting up their own and investing in other trusts that are formed for the sole purpose of evading taxes. These EFT's are really the best thing the long term focused, tax paying, honest, individual investor has seen since sliced bread and our government would surely not deny us honest folks the benefits of sliced bread would they?

One of two things has got to be happening: either 1) the bureaucrats that are writing the legislation are incompetent and don't understand the value that EFT's can add to an investment portfolio or 2) the government is working with the mutual fund industry to close down competition that Canadian mutual funds and thus Canadian banks face. Is it a coincidence that this legislation is being proposed at the same time that Barclays and State street are getting really aggressive in introducing new funds?

What do you think is behind this: incompetence or competitive conspiracy? I've quickly reviewed the legislation on Bylo's site (thanks sooo much Bylo for your efforts on this) and don't see the EFT's explicitly mentioned so I'm hoping this is just a case of incompetence that will be corrected as soon as they are aware over their oversite.

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Date: 15-Aug-2000 - 4:10 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: active

No incompetance. No mistake.

Just another 'Federal Liberal' law in the works.

Vote CA.

Thanks Bylo. My fax is out.

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Date: 15-Aug-2000 - 5:57 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

What do you think is behind this: incompetence or competitive conspiracy? I've quickly reviewed the legislation on Bylo's site (thanks sooo much Bylo for your efforts on this) and don't see the EFT's explicitly mentioned so I'm hoping this is just a case of incompetence that will be corrected as soon as they are aware over their oversight.

Green, this is no oversight. They do not need to name these products to catch them in the legislation. We checked this thoroughly with a top tax attorney before we went public on Bylo's site. We didn't want to go to all this trouble unless we had to.

You can be sure the Dept. of Finance is very much aware of the effect of their own legislation. In the original Budget Plan the U.S. based foreign investment funds/trusts were clearly exempt and differentiated from the tax avoiding trusts. Then all of a sudden we get the Nov. 30 th. press release and no more exemption, simple as that, just the stroke of the pen.

I can assure you the bureaucrats that write the actual legislation are intelligent, qualified and good at what they do. The problem is they are doing the work of their political masters. We can all make a guess at who is pulling those strings, as Bylo said “follow the money”.

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Date: 15-Aug-2000 - 6:54 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: green

Has there been any response from a government official on their intent here with respect ETF's? Are they just saying tens of thousands of honest individual and institutional investors are caught in a net to catch hundreds of individuals that buy into tax evasion trusts. The numbers don't add up. I'd like to see a government response to the question "why are you doing this". Please, if anyone hears one, let us know. In the meanwhile, I'm on the phone to my MP trying to get an answer.

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Date: 15-Aug-2000 - 7:56 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: BruceCohen

Great work Bylo. Thank you very much -- you've performed a great service.

But who wudda thunk they'd bury this under a heading like "Proposals for the Taxation of Non-Resident Trusts and Foreign Investment Funds"?

And how many individual investors routinely read Dept of Finance news releases?

Finance never expects to hear from individuals. The relatively small staff at Finance have a very close, albeit often adversarial, relationship with Canada's community of tax lawyers and tax accountants. In a nutshell, Finance writes draft legislation and regulations and then publishes it for review by the private sector lawyers and accountants. Even though they're called "news releases," the Finance announcements are really aimed more at tax advisors. When I was a reporter I got some of my best scoops by skimming the text of each release, not just the heading.

I am worried by one quote, dated November 1999, in your history of this matter: Moreover, there were concerns that this exemption would allow for structures that could have undermined the effectiveness of the rules. This implies Finance got wind of a scheme or potential scheme that would enable its targets to avoid the offshore trust rules and decided to be proactive instead of risking embarassment. Finance has a long and strong record of using sledgehammers to kill gnats.

FWIW, I doubt very much that there was any mutual fund industry lobbying for this. IFIC's tax committee is comprised of very technically-oriented accountants and fundco treasurers who generally pay little attention to marketing issues. Indeed, IFIC lost its last really big tax lobby effort. That was when it tried to scuttle or beat back Revenue Canada's move that effectively killed mutual fund limited partnerships.

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Date: 15-Aug-2000 - 8:24 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Someone on TFL asked:

Can it get any easier than that ?

Actually, yes!

new! Fight the Tax Fax Generator. Thank you Norm of Directions.

By working together we can kill this thing. Vote early. Vote often :-)


The amount of e-mail I got today is fantastic. I'm amazed at how many people used today's newspaper articles along with the website to compose their own letters. I've compiled some of them here. Many more just used the sample letter. Keep it coming folks.


Late-breaking news: Our sample letter has now been reviewed and revised by a tax lawyer who is familiar with this sort of stuff. He's added some language that Finance will understand :-) We'll be posting this on the web shortly.

Thank you cbg1 for getting this reviewed and thank you also to the tax lawyer who, until I hear to the contrary, shall remain anonymous.

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Date: 15-Aug-2000 - 9:52 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Warren

Great work Bylo. My fax has been sent.

As Bruce says, sometimes hammers are used to kill gnats .... OTOH when there seems to be "unintentional" victims of a piece of tax legislation, you sometimes have to wonder if the unintentional was actually unforseen as well? Hmmmmm.

Warren.

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Date: 16-Aug-2000 - 7:52 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Conspiracy theory-of-the-day

When Barclays launched its iShare ETFs in the US earlier this year there was much speculation in the press and on the web that soon the US fund industry would introduce actively-managed securities based on the more tax-efficient ETF structure.

Suppose this happens, and Canadians are able to buy the ETF versions of popular US-based mutual funds in the same way they can now buy US stocks. Why would they then want to buy MER-bloated mutual funds from Canadian fund companies or from the Canadian subsidiaries of US and other foreign-owned fund companies?

Hmmm...


Jon,

The thrust of all the media attention is that individual do-it-yourself investors will be adversely affected by this legislation. Let's not forget that fee-only financial advisers will also be adversely affected to the extent that they now recommend low-cost ETF and closed-end mutual fund to their clients.

BTW, great column in today's Financial Post, Catch-22 for exchange traded funds! Thanks for the publicity for our campaign.

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Date: 16-Aug-2000 - 8:54 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: George$

Another conspiracy-theory-of-the-day.

This proposal is an attempt by Paul Martin's political enemies to publically discredit him. [Like from somebody in the Prime Minister's office, -- hint, hint.]

How dumb is this irrational proposal?

Almost as dumb as having a different tax policy for people living in even numbered street houses from the tax rules for those living at odd numbers. Shush.

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Date: 16-Aug-2000 - 9:53 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Due to child-care duties, I'm working from my home office today. For further developments on this issue, please e-mail me at chevreau@istar.ca or call me at 416-259-1274.

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Date: 16-Aug-2000 - 9:54 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: mikale

Superb campaign, Bylo.

The uproar should also continue subsequent to the September 1 deadline submission for comments, in the event that the legislation passes as drafted when Parliament gets back to work this fall. FWIW, the legislation will pass. The Finance Department has been playing with this "trust stuff" for too long. Finality is required.

However, Finance routinely brings out technical amendments to fine tune prior legislation. And to add some realism; the monstrous tax hit is not a problem until December next year such that lobbying efforts may be successful in the second (third?) instance.

It would be simple enough to amend the law exempting foreign exchange-traded funds (Canadian brokers report such transactions to CCRA) from the default provision of the section 94.2 mark-to-market FIE rule. It is also conceivable that Revenue can adopt an administrative position that the ETF prospectus is sufficient information within the meaning of the section 94.1 accrual FIE rule (the existing system).

However, I disagree that U.S. MFs should be exempted from the 94.2 rule (do U.S. brokers or MFcos equally report to CCRA?).

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Date: 16-Aug-2000 - 10:18 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

I disagree that U.S. MFs should be exempted from the 94.2 rule (do U.S. brokers or MFcos equally report to CCRA?).

Dunno about "equally" but US brokers/fundcos do report on IRS 1042 info slips all income in respect of distributions. Canadians receive these slips every spring, both for US-based mutual funds and dividend-paying US stocks.

The information is broken down by (a) interest (ordinary income) (b) dividends (which BTW are not eligible for the Canadian div tax credit), (c) short-term capital gains and (d) long-term capital gains (both of which are capital gains in Canada.) They also show how much tax on each type of income was withheld.

CCRA today accepts such information slips filed with Canadian income tax returns as documentation of foreign income as well as proof of eligibility for the foreign tax credit.

If there's a reporting problem then that problem presumably would extend to shares of US corporations, especially holding companies like BRK and closed-end mutual funds.

So I don't see a problem. But then IANAL.

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Date: 16-Aug-2000 - 11:07 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: lawnjockey

By Mikale's logic, should all assets held by entities subject to Canadian taxes, and that do not regularly report to CCRA, be held to the same proposed standard--that is, a yearly tax on any accrued gains whether realized or not?

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Date: 16-Aug-2000 - 11:17 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: lawnjockey

Further, if the proposal is enacted, would investors subject to the new tax regime be able to claim unrealized capital losses?

And If they had no gains to offset, could they accrue those losses to offset future capital gains?

Just sorting out which unrealized asset gains have to be accounted for and which don't seems another bonanza for the bookkeeping and accounting profession.

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Date: 16-Aug-2000 - 11:58 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

US mutual funds and ETFs don't evade taxes. Criminals evade taxes.

[based on the late, two-time US presidential candidate Pat Paulsen's observation, "Guns don't kill people. Bullets kill people."]

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Date: 16-Aug-2000 - 12:52 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: mikale

Bylo, you didn't answer my question [do U.S. brokers or MFcos equally report to CCRA?] other than boilerplate.

Is the IRS 1042 issued to you et. al. by Vanguard reported to CCRA by magnetic tape [beats me whether it's a copper or optic pipe :-)]? If so, Taylor & Mel should be advised as to subsidization. :-)


lawnjockey, IMO the draft law says that FIE losses/gains are netted. In other words, a FIE loss cannot offset a non-FIE gain.

The conspiracy theorists opine that it's a Cdn MF conspiracy. I think ya're right. It's really an accounting conspiracy. In the past there were 2 sets of books; one reported to CCRA, one hidden in the bowels of a Guernsey trust which was reconciled for the client. Now the accountants are forced to report both sets of books under penalty of perjury. :-)

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Date: 16-Aug-2000 - 1:20 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: DanH

A little more clarity, courtesy of the Canadian Tax Foundation.

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Date: 16-Aug-2000 - 1:39 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Great article Jon, please keep this issue and Bylo’s site address in the Post as much as possible.

You have made a tremendous contribution.

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Date: 16-Aug-2000 - 1:44 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Is the IRS 1042 issued to you et. al. by Vanguard reported to CCRA by magnetic tape?

Dunno mikale. Maybe they're still using smoke signals pending budgetary approval to upgrade to punched cards. But in any case it's generally accepted that CCRA and IRS exchange information. So if CCRA isn't getting copies of 1042 slips that are issued to Canadians perhaps they ought to offer the IRS to swap them for T3/T5 slips that are issued to 'Murrikans. Moreover, tax is withheld at the rate of 30% of the distributions (15% if a W-8 is filed with the IRS) so (a) there's an incentive for investors to come out of the closet and (b) if not, at least some tax gets collected by the authorities even though the perpetrator isn't complying with the tax regulations.

If tax evasion by offshore (as in "not physically connected by the longest undefended border on the planet") trusts is a problem then by all means let's go after offshore trusts and those who use them and/or who help set them up and run them.

But isn't one of the "benefits" of NAFTA supposed to be the facilitation and simplification of commercial activity amongst the member countries? Why are we building unnecessary barriers to legitimate activities?

Both CCRA and IRS have stringent rules and mechanisms for reporting and taxing income that arises from the ownership of stocks, mutual funds, ETFs and similar publically-traded securities. Moreover, the corporations and fund companies that issue these securities and the dealers/brokers that trade them are also subject to stringent reporting and scrutiny. If information flow between CCRA and IRS is a problem then instead of shutting down cross-border ownership of such securities, get the revenoooers talking to each other.

If the US offers some trust structures that make tax evasion by Canadians possible then either ban ownership of such trusts or explicitly exclude publically-traded (and hence transparent) FIFs and FIEs.

The inadvertent victims of this legislation are neither evading tax nor even trying to evade tax. It's hard for me to imagine why/how -- but remember IANAL -- someone who wants to evade tax would try to do it using such securities in Canada or the US. Why wouldn't they instead try this in a true "offshore" jurisdiction where banking secrecy and similar barriers facilitate their activities?

So why use a sledgehammer to gratuitously beat law-abiding taxpayers into submission [which given the current campaign they're doing on at least two levels]?

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Date: 16-Aug-2000 - 2:39 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: LesR

I appreciate all of you bringing this to my attention.Several ideas:1)Write government contacts re the implications of this for Canada's attracting citizens back, wealthy investors, "brain drain",etc. 2)Find fee-for-service advisors to get their contacts to write. 3)I have contacted Vanguard and Berkshire Hathaway in an attemp to get them to inform their clients.

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Date: 16-Aug-2000 - 2:47 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: green

I'm real worried now. I just got off the phone to my Member of Parliament, who is an Canadian Alliance member. I was his 1st constituent that raised the issue with him so he checked with the CA Finance critic who said that only 3 people have complained to CA MP's nation wide. Three people! My MP thinks that unless there is much more noise made about this that the Liberal Finance guys will take the path of least resistance and pass the legislation since so few Canadians are negatively impacted. Please, lets keep the campaign going. How do we know if the campaign is working and when do we have to take further steps?

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Date: 16-Aug-2000 - 3:03 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

LesR,

1) That's what the fax campaign is all about.

2) There are at least 2 such advisers on this forum who as I understand it are doing just that. Further, the Canadian Association of Personal Financial Advisors is contacting all of its members.

3) Who did you contact at Vanguard and Berkshire Hathaway? I sent an e-mail yesterday to all three of the PR/communications people listed on Vanguard's website to alert them of this issue and gave them several reasons why they should care. It turns out 2 of the 3 are on vacation, and the 3rd (who the other 2 claim is their back-up) has not responded.

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Date: 16-Aug-2000 - 3:17 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Bylo,

Well North Vancouver being one of the wealthier communities in the country, I talked to my MP Ted White who's had several calls.

He suggested the following course of action.

He said Jason Kenney, who is Finance critic be foreworded all copies of the faxes and e-mails. He suggested that this is very important because Paul Martin needs to know that the opposition is aware of the size of this campaign. He also suggested that it say on the fax that they're being forwarded to Jason Kenney.

He said without this step, the opposition has no idea as to the amount of concern this issue is generating and can't effectively bring up the issue in the House of Commons.

Jason's e-mail address is kenneJ@Parl.ga.ca

His fax number is: 403-225-3504

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Date: 16-Aug-2000 - 3:23 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Bylo,

Well North Vancouver being one of the wealthier communities in the country, I talked to my MP Ted White who's had several calls.

He suggested the following course of action.

He said Jason Kenney, who is Finance critic be foreworded all copies of the faxes and e-mails. He suggested that this is very important because Paul Martin needs to know that the opposition is aware of the size of this campaign. He also suggested that it say on the fax that they're being forwarded to Jason Kenney.

He said without this step, the opposition has no idea as to the amount of concern this issue is generating and can't effectively bring up the issue in the House of Commons.

Jason's e-mail address is kenneJ@Parl.ga.ca

His fax number is: 403-225-3504

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Date: 16-Aug-2000 - 3:27 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Sorry about the double posting, guess I got trigger happy

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Date: 16-Aug-2000 - 3:36 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Here's another suggestion. All of you who have contacts with local talk radio or who have ever been on before should call up your contacts in radio stations and get on the air to reach those who don't read the big dailies or these web sites. TV takes a long time to develop story ideas and is very competitive to get on, nor is a complex story like this easily explained in the time alotted. Garth Turner's show should do it, however! Radio, on the other hand, has a huge space to fill and can act very quickly. We have only two weeks, so let's get on the blower to local radio. Perhaps someone out there has a small P.R. firm with a good media list we can mobilize.

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Date: 16-Aug-2000 - 3:37 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

What's more, the e-mail address appears to be incorrect. The parliamentary web site says: Kenney.J@parl.gc.ca (see my e-mail to you.)

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Date: 16-Aug-2000 - 3:53 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

I phoned again to confirm the e-mail address and was told that although both are correct, the standard is to use the first five letters of the name followed by the initial. So as far as the secretary of my MP is concerned, it's correct without the "y"

Guess it's your choice as to which you prefer but being consistant with one or the other would probably be a good idea.

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Date: 16-Aug-2000 - 10:57 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: dufferdon

As well as e-mailing Mr. Martin I have brought the matter to the attention of the commercial section of the US Embassy in Ottawa. I would think they should have something to say about what appears to be a protectionist act which discriminates against US-based investment products.

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Date: 16-Aug-2000 - 11:21 PM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: chris

Jon,

Great job yesterday and today, "Catch 22 for exchange traded funds" Please don't stop writing about it. I've sent a letter to the finance dept. with cc to Paul Martin and my member of parliment>

Edmonton

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Date: 17-Aug-2000 - 3:04 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Maybe we should start a thread to indicate who's been contacted otherwise we could just be doubling up on someone elses efforts.

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Date: 17-Aug-2000 - 6:42 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Maybe we should start a thread to indicate who's been contacted otherwise we could just be doubling up on someone elses efforts.

The more times that an MP or a bureaucrat gets contacted, whether by media, industry (BGI, SSgA are making submissions), lobby groups (CAPFA, CTF, CICA, CBA etc. are all making submissions), or especially by private individuals, the better. Otherwise they'll just think this is some minor technical issue.

Vote early. Vote often. And please e-mail a copy to bylo.

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Date: 17-Aug-2000 - 9:38 AM
Subject: Re: Stop tax on US mutual funds/ETFs held by Canadians
From: BruceCohen

Years ago, Paul McCrossan -- the actuary-turned-MP who played a key role in revamping the RRSP rules -- said MPs pay attention to any issue that generates more than 10-15 letters. (Of course, that was long before e-mail.) Keep writing!

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Date: 17-Aug-2000 - 4:35 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: ngoldman

I just sent a fax to Irwin Cotler Liberal MP for Mont Royal enclosing a copy of the Jon's National Post article as well as a copy of the various messages appearing on the board. Each and everyone of us should flood our MPs with these articles either via fax, mail, or email. It is important to make them understand that they are not going to pull the wool over our eyes! Copies should also be sent to everyone of the opposition members,as well as financial planners, investment club associations,radio stations, etc Unfortuntately if it were not for Jon and the National Post I would not have known about this proposed legislation.

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Date: 17-Aug-2000 - 5:06 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Thanks, but you can give equal credit to Bylo and his site, to the many TWB posters like CBG, George$ and others at this site and even to Rob Carrick at the Globe. Bylo's site makes it easy to find out your MP's name and fax number and even to use some boilerplate letter copy. More effective, though would be to compose a genuinely fresh and original letter of protest. And make sure you copy Jason Kenney, as per the top of Bylo's page on this. You can find the URL in the first post of this thread.

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Date: 18-Aug-2000 - 7:00 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Years ago, Paul McCrossan -- the actuary-turned-MP who played a key role in revamping the RRSP rules -- said MPs pay attention to any issue that generates more than 10-15 letters. (Of course, that was long before e-mail.) Keep writing!

Bruce, I have sent 25 letters myself along with countless email and phone calls this week. The first day we went public on Bylo’s site I confirmed close to 15 letters were received at the the Tax Policy Branch. That was four days and a political lifetime ago.

My feeling is that this issue is rising up through the various political ranks like lava in a volcano. It’s taking some time and a lot of pressure but this mountain of policy dung is slowly getting ready to blow its top... KA.A... BOOOM !

If we all persevere and collectively bombard them again next week with hundreds more letters, faxes, email and phone messages from a broad cross section of the public and various professional groups, the powers to be will undoubtedly move to a damage control stance and then prepare for a full scale retraction.

Keep the pressure on, if you sent 10 letters this week follow-up with at least 10 phone calls next week.

Good luck and happy dialing.

cbg1

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Date: 19-Aug-2000 - 2:28 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Anyone track further press on this, beyond what I did and Rob Carrick? I'll do at least one or two more before the Sept. 1st deadline but we need to go beyond the Post and Globe readership.

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Date: 19-Aug-2000 - 8:11 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: ngoldman

Jon- I agree with you we need to get this to the widest possible media: radio, t.v. press, internet, etc. What about the various tax lobbying groups- which ones are involved? What about the various associations such as the Accountancy profession whose members advise their clients on financial planning? We must use a sledgehammer, otherwise we will all be shafted! Regards- Norm

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Date: 19-Aug-2000 - 9:50 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: dhamilt

I'm trying to invest for my retirement so I won't have to depend on the government.

Message To The Government:

Please don't make me eat dog food like thousands of my parents generation because they were taxed to the point their investments earned them little or nothing.

When is the government going to stop destroying tens of thousands of people's lives in their grand scheme to keep their power and wealth?

Derek Hamilton

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Date: 19-Aug-2000 - 10:19 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

We (cbg1 and Bylo) would like to thank and acknowledge Blair Dwyer for generously assisting this campaign. At the outset Blair helped us to appreciate the wide scope of these proposals and his contribution is very much appreciated. Blair is a tax lawyer and estate planner practicing in Victoria B.C. He can be reached at blair@dwyertaxlaw.com

If we e-mailed Blair a few well deserved thank-yous we might even entice him to become a regular poster to this forum. :-)

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Date: 19-Aug-2000 - 1:16 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Norm I've been in touch with the CICA institute and the Canadian Tax Federation, both are aware of this issue. I've tried contacting the local press but so far no luck. My next idea is to see of my MP would be willing to write a letter to our local newspaper about this issue. Maybe, that's something those of us with less clout could consider not just writing to them but going that extra step and encourging them to become actively involved.

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Date: 19-Aug-2000 - 1:29 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Also if you think about the idea of a grass roots campaign to change tax legislation largely originating off this website and bylo's, and the internet in general, it should make for an interesting story.

In addition, if tax lawyers such as Blair, other professionals and perhaps even a couple of politicians start using this site it becomes very interesting indeed.

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Date: 19-Aug-2000 - 4:35 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Anyone track further press on this, beyond what I did and Rob Carrick? I'll do at least one or two more before the Sept. 1st deadline but we need to go beyond the Post and Globe readership.

Jon, no way this campaign would be anywhere close to where we are now without your articles. People will write if they know they are getting screwed. Publicity combined with an effective way to protest is a very powerful lever. I believe Rob C. will be doing another article as well.

Please do a something specifically on the ”David and Goliath Campaign” this is a very compelling story. (see below)

Also if you think about the idea of a grass roots campaign to change tax legislation largely originating off this website and bylo's, and the internet in general, it should make for an interesting story.

Terry I agree with you and Ted White, this is the story that I think Jon should write about.

Technology and motivated people have changed the political process now and forever. This is the beginning of a trend that will be repeated many times in the future on all kinds of issues. Once people taste the power of influence they will never give it up, and why should they. This sort of thing is probably being done in a small way all over the globe.

The internet vehicle (in this case the TWB & Bylo’s site) has proven its effectiveness for organizing and then conveying public opinion and displeasure. It can be focused to convey support or enact change at any group or individual on any subject or issue.

It can be used like a snipers rifle or a cannon, what ever you chose. Pick the issue, select your target, then rev up that letter generator and start calling the organizations with a vested interest. Rally the public call the newspapers and all of a sudden the target is under extreme pressure to react to your proposals.

A powerful tool that should be used with care.

In addition, if tax lawyers such as Blair, other professionals and perhaps even a couple of politicians start using this site it becomes very interesting indeed.

I have asked Blair D. to get his mitt and join the game here at the TWB, lets hope he starts to drop by.

cbg1

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Date: 19-Aug-2000 - 5:39 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: face

Thanks to this site I became aware of the proposed legislation, and sent in my 2 cents worth.

Politicians are a sorry lot, who get carried away with their self importance.

Presently, I have 2 of my 3 children (actually, young adults) in the US. Why? Plain and simple, OPPORTUNITY.

Our politicians should be directing their efforts to make this country a great place live and work.

Well, I feel better, my blood pressure just dropped 20 points after than rant.

Good luck

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Date: 19-Aug-2000 - 8:19 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Over on TFL, "Fee Only Planner" makes this chilling observation:

...this is a very important issue and in my opinion everyone should be concerned about it.

Why??

Well for starters even if it doesn't affect you directly the suggestion of taxing UNREALIZED capital gains on an annual basis should concern every investor in Canada. Cause once we start going down that path ...

Secondly investors should be appalled that the government proposes to change the characteristic of an investment from what was capital gains to income at a flip of the switch. Once again another dangerous precedent that deserves scrutiny.

Lastly, some people have begun to realize that for the most part, mutual funds are sold, not bought. (Why else would DSC even exist?)

As such many of the people being affected are the ones who have concluded that buying directly into the U.S. market with the use of etf's is cheaper, is more tax effective and the returns in a general sense are less volitile and superior to active funds. So if these type of investments are taken away then what?

Higher MER's to get into a similar type investment for starters.

I find it unusual that an investment discussion form wouldn't be concerned with some of these tax issues, regardless of where you stand in the index vs active fund debate.

Finance's foray down the slippery slope of taxing unrealized capital gains, and taxing them at ordinary income rates, should disturb all taxpayers, even those who are not directly affected by this legislation.

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Date: 19-Aug-2000 - 8:31 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Thanks bylo that was my two cents worth.

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Date: 19-Aug-2000 - 8:58 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: contrarian

The gov't is trying to discourage free loaders from hiding thier asset offshore. They had no intention of affecting law abiding Canadians and the legislation will be amended. Capital gains tax should be repealed all together, and likely will be. [irrelevant racial slurs deleted...Bylo]

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Date: 20-Aug-2000 - 1:03 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: chris

TO Kathy Kerr, Business Editor Edmonton Journal I'm very disappointed in The Edmonton Journal that they have not commented or written any articles on the proposed tax legislation of Foreign Traded Mutual Funds. As I explain below I think you owe it your readers to alert them on these proposed changes which will effect the returns of popular U.S. exchange traded funds such as SPY "Spiders S & P 500", QQQ "NASDAQ 100", and DIA "Dow Jones Index", etc. It is with great shock and disbelief that I read in The Globe and Mail (written by Rob Carrick) on Tuesday, August 15, 2000, and The National Post (written by Jonathan Chevreau) on how the Finance Department is proposing to treat gains from foreign exchange traded mutual funds, also called index participation units. According to the article, the gains would have to be declared annually as ordinary income vs capital gains, which means you would not get the benefit of the 66% tax inclusion rate. It would also hurt the compounded appreciation of your investment, as you would annually have to sell a small portion of your investment to pay the taxes.

I agree with the point of the legislation in "curbing tax avoidance by stashing money abroad" as entirely legitimate. But including exchange-traded funds would be overkill.

Including exchange traded mutual funds in the legislation will hurt many small investors like myself who are simply buying exchange-traded funds to build a low cost but well diversified fund. This legislation would handcuff the small investor trying to maximize their returns for a comfortable retirement. Exchange-traded mutual funds are a low cost alternative to mutual funds, and it is one of the few vehicles that small investors have to broadly diversify in the U. S. stock market without paying high management fees to mutual fund companies.

In closing, as an ordinary Canadian, I urge the finance dept. to review the inclusion of exchange-traded funds in the proposed legislation. This policy change would widen the wealth gap between the United States and us.

I've written the above concerns to both the finance dept., my member of parliament and Paul Martin, the Finance Minister. The Finance Dept. set a Sept. 1, 2000 deadline for comments from the public.

I urge the Edmonton Journal to alert their readers of this change so that they may have the opportunity to write or e mail their views to the Finance dept. and their member of parliament.

Yours very truly,

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Date: 20-Aug-2000 - 1:27 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: AltaRed

For whatever reason, I have been missing out on this Forum all year long...and TWB as a whole. Stumbled across this as a result of a link in The Fund Library. And the crazy thing is that I've been researching SPY's, QQQ's, etc the last 3 weeks with a view to buy SPY's next week. Now I am not so sure I want to do that if I'm at risk of being taxed annually on unrealized gains as ordinary income!!

What are the likely chances of Finance getting away with a fast one on us?

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Date: 20-Aug-2000 - 1:57 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

AltaRed, welcome to the TWB. The chances are getting less with every letter we send and phone call we make.

If you have not yet been to Bylo' site drop by and use the helpful material to make your displeasure known to your MP and others in Ottawa. Tell everyone who will listen to do the same. BTW the TFL forum is just about a lost cause.

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Date: 20-Aug-2000 - 2:31 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Welcome AltaRed.

What are the likely chances of Finance getting away with a fast one on us?

The more people who make submissions and follow them up with their MPs the smaller the chance of that happening.


Isn't it ironic that the current "Word of the Month" at the Investor Learning Centre of Canada (Canadian Securities Institute) website is iShares?

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Date: 20-Aug-2000 - 2:47 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Bylo, funny you mention that, I went all over the Investor Learning Centre site last night and could not find one single mention of the proposed tax legislation. They even have a section for "News".

In light of their "The word of the Month" , I find that very strange.

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Date: 20-Aug-2000 - 9:00 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

From Eric Chan:

Dear Mr. Chevreau:

I would like to first thank you for bringing this proposed legislation to our attention, it proves once again that the National Post is a publication with an interest in the rights of investors.

We are an investment club located in Edmonton, with 26 members, and a portfolio of just over $1 million. We make extensive use of ETF's. On behalf of our investment club, I have send FAX's to the Finance Department, Paul Martin, my MP, and certain members of other political parties.

Canadians are busy, and when they encounter terms like ETF's and trusts, they believe that this legislation only affect the wealthy. I have therefore summarized my objections to this proposal in words that most ordinary Canadians will understand:

1. Investors are taxed on gains they haven’t realized.

2. It taxes capital gains as income.

3. It is anti-consumer. It forces investors to use more expensive and inefficient vehicles (for example, the management fee on S&P500 depository receipts is over 5 times lower than the typical management fee on index funds from the Canadian fund industry); and it lessens choice (for example, there are no products in Canada equivalent to the Russell 2000 iShares).

4. It is protectionist. The Canadian large banks and mutual fund companies will profit at the expense of consumers, because competition is stifled through the unequal application of taxes.

5. It unfairly favors the wealthy. For example, a wealthy investor who can afford to buy the 30 DJIA stocks will receive preferential tax treatment over other investors who can only afford to purchase these same 30 stocks through the Exchange-Traded DIA.

6. It creates investment uncertainty. It is extremely difficult, if not impossible, for an investor to determine if investments form over 50% of a company’s activities in the case of companies such as MGI and Microsoft; and it would certainly affect the taxation on stocks of companies such as Berkshire Hathaway.

In closing, thanks again for giving this issue the high profile that it deserves. I hope there will be more articles in the days to come.

Eric Chan

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Date: 21-Aug-2000 - 7:00 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Richard Croft weighs in (with Eric Kirzner to follow up later):

Innocent may be caught in tax net

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Date: 21-Aug-2000 - 10:30 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Once again the Financial Post takes the leadership role. Way to go Richard and Jon !! Stay on them.

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Date: 21-Aug-2000 - 12:07 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Beyond a doubt the Financial Post and particularly Jon, with his columns and this website have done a tremendous job todate.

However, my only comment is that I would like to see the issue expanded. Although this specific issue should continued to be commented on, I think Bylo's comment about "Finances foray down the slippery slope of taxing unrealized capital gains, and taxing them at ordinary income rates, should disturb all taxpayers, even those not directly affected by this legislation." deals with a bigger issue.

In my opinion, this is the best quote I've heard so far on this topic and I would love to see it included in one of the articles because it expands the issue to include everybody.

But that's just my opinion. All articles written on this subject are greatly appreciated.

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Date: 21-Aug-2000 - 12:31 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: green

There was a great post in a newsgroup that summarizes the issues very well. I'll post it here as well......

From: All For Competition
Newsgroups: misc.invest.canada
Sent: August 18, 2000 12:39 PM
Subject: Re: Stop the proposed tax changes to US mutual funds and ETFs held by Canadians


If you don't want to read through loads of documents to understand
what the issues are, this is my summary:

There are so many things wrong with this proposal, that I am only
listing 5 of them:

1. You are taxed on money you haven't made. You are normally taxed
when you sell a stock for more than what you paid. Under this
proposal, if your hold trusts like S&P500 Depository Receipts, you are
taxed on December 31st even if you haven't sold it.

2. It taxes capital gains as income. Securities like the depository
receipts from foreign sources will now be taxed as income.

3. It is anti-consumer. It forces you to use more expensive and
ineffcient vehicles (for example, the management fee on S&P500
depository receipts is over 5 times lower than the typical management
fee on index funds from the Canadian fund industry).

4. It stifles competition. The following array of investment
vehicles will effectively be blocked from Canadians: All depository
receipts that trade on the AMEX, all iShares, all HOLDRs, all mutual
funds by non-Canadian companies, and all hedge funds managed by
non-Canadian companies.

5. It may block access to highly-popular stocks. For example, stocks
like Microsoft, Berkshire Hathaway, and MGI could be considered
foreign investment trusts.

I'll add #6: Its a dangerous precedent.

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Date: 21-Aug-2000 - 2:10 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

On 20-Aug-2000 - 2:31 PM Bylo wrote:

Isn't it ironic that the current "Word of the Month" at the Investor Learning Centre of Canada (Canadian Securities Institute) website is iShares?

Well I e-mailed them. Here's the response:

Thank you for your comments in response to our "Word of the Month".

Our mandate is to provide unbiased, non-promotional information for investors, and we would not petition the government.

However, we do strive to let investors know both the pros and cons of choosing any type of investment, and we will consider the subject of "ishares" for a future article or question of the week.

Anyone know somebody at ILIC/CSI whose IQ is more than a single-digit? [Yeah I know, my frustration is showing.]

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Date: 21-Aug-2000 - 4:49 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Both Bruce Cohen and Glorianne Stromberg write columns for the ILIC. Both would qualify I am sure, maybe they could help?

Anyone spoken with Glorianne Stromberg at all about this issue ?

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Date: 21-Aug-2000 - 5:14 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

I've talked to Glorianne and she's appalled by the proposed legislation "because it denies to the individual investor the ability to use modern portfolio management techniques at a reasonable cost."

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Date: 21-Aug-2000 - 9:11 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

I received an e-mail from Walter Robinson of the CTF he said they are definately on board and will be opposing this legislation. He said they will be sending an open letter to Paul Martin,issuing a news release and contacting key media interested in personal finance.

Let's keep the pressure up!!

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Date: 21-Aug-2000 - 10:26 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

Keep up the good work Terry. You are a relentless warrior :-).

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Date: 21-Aug-2000 - 11:34 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Terry

Thanks cbg1, but I think there is a team of relentless warriors hard at work..yourself included

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Date: 22-Aug-2000 - 12:05 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: reader1

I have contacted the owner of a large investment fund dealer. Even though he makes his living from funds, he agrees that this is an extremely unfair proposal. He will be contacting the various MPs, etc. as a fund dealer voicing his objections.

I don't want to give away his name or company, but I'm sure he will be posting this information when he's ready.

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Date: 22-Aug-2000 - 8:54 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

More coverage today ...

Planned tax protectionist for fund firms [Rob Carrick, 22Aug00]

Welfare states' spiteful attack on tax havens [Jonathan Chevreau, 22Aug00]

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Date: 22-Aug-2000 - 12:10 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: green

Gordon Pape speaks out in this excellent article:

New draft rules would tax unrealized gains on SPDRs, WEBS and more

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Date: 22-Aug-2000 - 2:18 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: reader1

I am too "young" to realized this, but someone mentioned to me that in the early 80s, the Liberals proposed to tax unrealized gains every year. There was a huge uproar, and they back-tracked.

Some things never change ...

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Date: 22-Aug-2000 - 8:07 PM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: cbg1

This is a good time to reiterate Bylo’s action plan:

Please ensure you have done each of the following. If we back off now we lose our opportunity to have our concerns fully considered before this becomes law.

1. Phone your MP and wake him/her out of their summer snooze. Make sure they understand why you are irate.

2. If they're Liberal, ask them pointed questions about why our Government is attacking us. Ask them what they're doing on our behalf to protect us from Finance's zealots. Demand their commitment to ensure the exclusion of public, listed US-based securities from final legislation.

3. If they're Opposition make sure they understand how embarrassing they can make this for the Liberals. (And if they're Liberal make sure they know you're working with the opposition to embarrass them.)

4. Keep faxing, Keep faxing... Get your family, friends and neighbors to fax. Even if they don't own any of the securities that are targeted one day they may want to. More disturbing is the prospect that this is just the "thin edge of the wedge" in which law-abiding tax-paying individual investors get caught in some heavy-handed, ill-conceived "scheme" by Finance to catch tax evaders. (Going after tax cheats is fine. Mowing down innocent bystanders in your path is not.)

When you have finished the above return to step one and repeat.

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Date: 23-Aug-2000 - 6:52 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

Finally, the Toronto Star gets wind of this, Martin's new tax will hit U.S. traded funds

Mentions Bylo, TWB, NormR, Pape and Blair Dwyer.

BTW, if the above link is broken (as it will be tomorrow thanks to the Star's website organization) try the link to it on my site.

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Date: 23-Aug-2000 - 10:58 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Jon Chevreau

Nice to see the Star join the fray. Thanks, Ellen!

This thread is getting hard to load; I suggest people also post to the newer spin-off threads, such as the one computing the cost of the tax and posing such questions as: what happens with losses and how does this affect the 25% foreign content limit in RRSPs and RRIFs?

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Date: 23-Aug-2000 - 11:13 AM
Subject:Re: Stop tax on US mutual funds/ETFs held by Canadians
From: Bylo Selhi

OK, so stop taxing this thread and start to Stop tax on US mutual funds/ETFs held by Canadians (2)

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