OTTAWA - The governor of the Bank of Canada says the Conservative government's decision last fall to impose new taxes on income trusts levelled the playing field and helped eliminate inefficiencies in capital markets.
David Dodge told a Commons committee today that income trust status is fine for companies that simply have to manage existing assets, but it's wrong for firms where innovation and new investment are important factors.
He said some companies became income trusts simply to reap tax benefits and not with an eye to business efficiency -- and that reduced their potential for productivity growth.
Dodge said the old system, in which income trusts paid little or no corporate tax and distributed their earnings directly to investors, actually created inefficiencies in capital markets.
In the long run, he said, that hurt investment, output and productivity.
