IFIC calls for changes to mutual fund taxation, group RRSP rules

The Investment Funds Institute of Canada recently proposed federal budget measures for 2017. It would like to see initiatives that:

contribute to Canada’s economic growth;
support the middle class;
enhance retirement savings; and
enable Canadians with disabilities to achieve better standards of living.

Further, the investment industry would like the government to address the fact that mutual funds are taxed at a higher GST rate than other similar financial products. IFIC’s submission proposes that the government resolve this issue by qualifying mutual funds for a 100% rebate of the GST paid. Investors would benefit from such a move, says IFIC, because savings would flow through to them via a reduction of the tax component of funds’ MERs.

This kind of rebate would increase an investor’s accumulated earnings, enhance his returns and free more money for investment in capital markets, says IFIC’s submission. And, since a high proportion of investment funds are registered retirement savings plans, the rebate also could lead to higher retirement income levels—that would reduce dependency on public retirement income supplements.

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Education and registered savings

IFIC is calling on the government to improve access to higher education by increasing awareness of, and making improvements to, Canada Education Savings Grants (CESGs) and Canada Learning Bonds.

Read: Budget’s education measures take from the rich, give to the poor, for more on this year’s budget

“Canada’s future economic growth will depend on a well-educated workforce, but Canadians’ ability to save for their children’s education through RESPs is being dwarfed by escalating post-secondary education costs,” says Paul Bourque, IFIC’s president and CEO. “We propose increasing the lifetime CESG limits to $9,000 and removing the $500 annual limit on matching CESG grants.”

When it comes to retirement, IFIC supports changes to the rules governing group RRSPs to encourage employers to offer these accessible and efficient plans. Measures that would make group RRSPs more attractive to employers include:

locking in employer contributions so that they can only be used for retirement savings;
exempting employer contributions from payroll tax so that group RRSPs will be on the same footing as other pension plans; and
enabling auto-enrolment similar to PRPPs, with employees retaining the right to opt out.

Finally, IFIC also recommends that the government eliminate barriers to setting up and participating in Registered Disability Savings Plans. “By eliminating these barriers, the government will contribute to better standards of living for Canadians with disabilities, and increase their ability to make meaningful contributions to Canada’s economy,” says Bourque.

For more, read IFIC’s full pre-budget consultation letter.

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