The trade association for income funds is moving to oppose proposed federal tax policy changes.

The Canadian Association of Income Funds says it is concerned with changes that will restrict the ability of income trusts to access capital from foreign investors by placing a cap of 50% on foreign ownership of mutual fund trusts. The budget also implemented a change requiring a 15% withholding tax on all income trust distributions paid to non-residents.

“This is a major shift in investment policy towards the trust industry,” said Stephen Probyn, chairman of CAIF, and president and CEO of Clean Power Income Fund. “We are very disturbed by these legislative changes because they pose a severe challenge to income trusts which require access to foreign markets to attract the significant capital required to expand and undertake new projects”, he said.

In its submission to the Minister of Finance, CAIF is asking the government to withdraw clauses in the legislation that impose foreign investment limits pending further consultation. “We are asking the government to participate in an open public consultation process so that all impacted industry stakeholders and investors can be heard on this major change of Canadian public policy,” said Probyn.

Margaret Lefebvre, executive director of CAIF, argues that the foreign ownership restriction is unnecessary given the full implementation of a 15% withholding tax. “The government’s concern appears to be “tax leakage” however this issue has essentially been neutralized now that all distributions paid to non-residents are subject to a withholding tax. This should increase government revenues by $83 million or more.”