IIAC asks Ottawa for retirement reform, tax incentives

Most financial professionals — not to mention the government — are still working through the changes announced in the 2016 federal budget, but the IIAC forged ahead today with its 2017 budget recommendations.

The industry group gave the House of Commons’ Finance Committee its broad 2017 recommendations today:

The importance of fiscal prudence: the IIAC says the government should hold down public spending and benchmark any increases to real GDP growth. It also says the government should modernize the tax system, so it depends less on personal income tax and more on discretionary spending.

Read: Despite challenges, Albertans love owning businesses

Leveraging the private sector for infrastructure investment: the IIAC encourages the government to embark on more public-private partnerships. It argues that private institutional investors would help fund infrastructure projects seeded by the government.

Read: Are smaller investors getting the boot?

Providing incentives for investment in growing Canadian businesses: the IIAC argues that as Canadians age, they have become more risk-averse investors. That’s hurt small- and medium-sized businesses that need bold investors to invest in their early success. The industry group says the government should create tax incentives for promoting small-business financing, restore the increase to TFSA contribution room and loosen income trust rules. It also argues in favour of small business schemes, similar to ones in the U.K. that help fund small businesses and startups.

Read: Which country ranks #1 in retirement security?

Fully address the retirement savings gap: Improvements to the CPP will not properly address the challenges faced by younger Canadians, who need strong employer-based savings plans to supplement the CPP, and Canadians close to retirement, the group says. The group argues that the mandatory RRSP-to-RRIF conversion age should be eliminated, and that seniors be allowed to contribute to their RRSPs past age 71.

The IIAC argues that group RRSPs are at a tax disadvantage compared to PRPPs and defined-contribution plans. “For example, employer contributions to a Group RRSP are treated as earnings and, hence, payroll taxes like CPP and EI are deducted from those contributions,” the IIAC writes. “This uneven treatment is justified on the spurious grounds that Group RRSPs are not really a pension plan as funds can be withdrawn before formal retirement. The IIAC recommends that the government relieve employers’ and employees’ contributions to Group RRSPs from payroll tax, which will lead to higher savings for individuals using these plans.”