Thesis (Ph. D.)--University of Wisconsin--Madison, 1963. / Typescript. Vita. eContent provider-neutral record in process. Description based on print version record. Includes bibliographical references.

This thesis attempts to give an equitable and just answer to the problem of subjecting the earnings of co-operative associations to the federal income tax. The first three chapters discuss the nature of a co-operative per se, the development of the co-operative movement in Canada, the financial and business methods of Canadian co-operatives and the effect which the accumulation of tax-free reserves had had upon co-operative plant values. Chapters IV and V trace the Canadian history of the controversy over co-operative income taxation, and explain the particular application of the Income War Tax Act to co-operative associations before the 1946 amendments. The next two chapters examine the recommendations of three government bodies - two in Great Britain and one in Canada - which have wrestled with the question of subjecting co-operative earnings to income taxation. Chapter VIII explains the present Canadian tax law as it applies to co-operatives and compares it to the laws found in Great Britain and certain foreign countries. Chapter IX consists of an examination of the chief arguments advanced by both the advocates of co-operative income taxation and the defenders of co-operatives from such taxation. It will be noted that the problem is dealt with statistically, historically and theoretically. Such a three sided attack is necessary if just conclusions are to be set forth. / Arts, Faculty of / Vancouver School of Economics / Graduate

Closely-held corporations differ from widely-held corporations in that there are only a few shareholders, most or all of whom participate actively in management. This implies that the objective function is the owners' utility rather than profits, and corporate behaviour is influenced by both the corporate and personal income taxes. This dissertation builds a theoretical model of a closely-held corporation based on these features and uses this model to study empirically farmers' decisions to incorporate. The theoretical model determines the financial policy of a closely-held corporation from the static utility maximization problem of its owner. The model differs from previous work in that the set of financial instruments is extended beyond taxable dividends to include owner's salary, in-kind benefits, and the change in loans from the owner. Also, the modelling of the tax system is unusually detailed and includes the special tax provisions applying to incorporated Canadian small businesses . The Kuhn-Tucker conditions for the model show that the quantities of in-kind benefits consumed by the owner will depend on prices which are adjusted for the tax consequences of the goods' purchase. For dividends, salary, and changes in the amount of shareholder's loans, a financial optimum requires that it is not possible to decrease total personal and corporate taxes paid by increasing one financial variable and decreasing another. More specific conclusions are derived from the model in two ways. First, tax rates applying in Ontario in 1980 are substituted in the Kuhn-Tucker conditions to produce graphs showing the optimal financial policy in the more common situations'. Second, linear programming is used to provide numerical examples of optimal financial policies. This information is used to illuminate a number of tax policy issues relating to closely-held corporations. Other chapters discuss the extension of the model to multiple owners, many time periods, and the decision to incorporate. The last issue is studied empirically using a sample of 3,000 Saskatchewan farmers. Probit analysis shows that the probability that a farm will be incorporated is positively related to the farmer's education and the tax savings from incorporation. / Arts, Faculty of / Vancouver School of Economics / Graduate

In its treatment of "small" business at the time of Tax Reform, the government of the day chose not to attempt to achieve the ephemeral goal of strict adherence to concepts such as neutrality and horizontal equity. On the contrary, in implementing the "small business deduction" for Canadian-controlled private corporations its stated intention was to provide "direct assistance to small business — but only to incorporated small business. Conventional wisdom justifies such a policy of providing assistance to small business on the theory that in the absence of special tax concessions (or other assistance) for small business imperfections in the capital markets, which are alleged to reduce significantly the funding available to small business, would limit the ability of small business to fulfil what is seen by adherents to this theory to be its traditional entrepreneurial role in the Canadian economy. The thesis proposed herein does not attempt to assess the validity of a policy of providing assistance to small business through fiscal measures (assuming that it does in fact exist) but rather focuses on a potential inefficiency inherent in one aspect of its (apparent) implementation: there is presently no control mechanism to ensure that the funds made available to incorporated small business through the "small business deduction" are used in furtherance of the purported goal of this tax credit, i.e. "direct assistance to small business." It is suggested in this thesis that the restoration of some form of tax on unreasonable accumulations to replace the departed Part V tax would provide appropriate pressure upon the Canadian-controlled private corporation in terms of guiding the tax deferral benefits available through the small business deduction towards their stated object. Such a tax would, of course, have the complementary function of depriving those corporations which failed to reinvest the deferral benefits of same. Chapter one of the thesis introduces the topic and defines its basic parameters. As a means of laying a foundation for exploring the suggestion that a tax on unreasonable accumulations may be desirable, chapter two reviews the relevant statutory context into which such a tax would have to be placed. Chapter three considers aspects of the justification for such a tax. In the interest of learning such lessons as history might offer in this realm, chapters four, five and six examine specific variations on such a tax which have already found expression in legislative form: chapter four dealing with Canadian experiences in this area, chapter five looking at the American example and chapter six reviewing its British manifestation. Chapter seven analysis the possibilities as to the form which a tax on unreasonable accumulations might in fact take were it to be instituted in Canada. Finally, chapter eight contains some conclusions. / Law, Peter A. Allard School of / Graduate

The taxation of trust income is subject to inherent problems due to the nature of the trust itself which allows the separation of the legal and equitable interests and the creation of differing equitable interests in income arising from property held in trust. Problematic areas include questions as to whom should be taxed on trust income, when and at what rate persons should be taxed, and on what they should be taxed. Taxation of trust income under Canadian law depends on the nature of the income as currently distributable or as accumulating, and on the nature of the trust as testamentary or inter vivos. Provision is made for the taxation of the trust or of the beneficiary. Certain types of income are permitted to retain their character in the hands of the beneficiary. An attempt to devise a logical system for the taxation of trust income reveals in detail the type of problems inherent in such a system. Conceptual and practical difficulties in determining the appropriate taxpayer, rate, and timing of taxation are considered as is the nature of the beneficial interest and its significance for tax purposes. The Canadian taxation of trust income does not completely resolve these problems. The proposals of the Royal Commission and the current law in the United States and the United Kingdom are compared and contrasted with Canadian law. Differences among the rules of the various systems, reflect differences in the way they deal with the problems inherent in the taxation of trust income. The problems and their Canadian solutions are reviewed in comparison with methods adopted elsewhere. Any change to the existing rules would require a number of interrelated changes. It is not clear that improvements which might be effected are justifiable given the increased complexity attendant on their introduction. / Law, Peter A. Allard School of / Graduate

Canada is one of the countries depending on foreign investment to a fairly high extent. After some time of concern about foreign investment¹ the Foreign Investment Review Act (FIRA) was implemented.² With the federal election in 1984 the Canadian government took the stand in favour of foreign investment again and changed FIRA to a more positive "Investment Canada". Anyway, the control of foreign investment should be seen only as part of a larger economic policy, which determines the economic criteria for investment decisions. One of these criteria is the Canadian tax law. And as one example, prior to 1980, all private corporations were entitled to the refundable tax in respect of their investment income. A first limitation was introduced in October of 1973, whereby corporations other than Canadian-controlled-private corporations were denied any refundable tax in respect of income from real property for taxation years commenced after 1979. Finally, as a result of the November 12, 1981 budget, for taxation years commenced after that date, investment income no longer "earns" refundable tax unless the corporation was a Canadian-controlled-private corporation throughout the relevant taxation year. The Canadian taxation of residents and non-residents in Canada, including the taxation of Canadian and non-Canadian-controlled companies and branches of foreign companies, is unequal and discriminating. This thesis will give some ideas about the Canadian taxation of foreign investment in Canada, referring sometimes to the Canadian-German Double Tax Convention as well as the O.E.C.D. Model Double Tax Convention. Since tax planning is a part of general economic investment decisions, the taxation of foreign investments will be evaluated in relation to other investment criteria for investments in Canada. As it will become obvious, there are reasons in favour of the Canadian tax policy on one hand and reasons against it on the other hand. As a conclusion, I am of the opinion that it is worthwhile to consider changes in the taxation of foreign investment. / Law, Peter A. Allard School of / Graduate

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Private investment in motion pictures is a popular form of tax shelter in Canada, for high income earners. This thesis attempts to determine if the tax shelter facilitated by motion picture investment adequately compensates the investor for the high risk of the investment. This is an investigation therefore, of the motion picture investment environment in Canada and an appraisal of the legal the financial implications of employing a motion picture tax shelter. A thorough unbiased examination of the consequences of private motion picture investment is needed because of the importance to the motion picture industry of this source of financing. From the point of view of the investor it is important to determine if motion picture investment is a viable-tax shelter. If motion picture investment is a viable shelter, it is necessary to determine the minimum marginal tax bracket an investor must be in before considering such an investment. It must be determined what form of financial arrangement the investment must take. An evaluation must be made to determine the type of motion pictures that are most likely to earn a profit. It is also necessary to determine the value of leveraging the initial capital investment vis-a-vis the incremental future investor liability incurred by the private investor. Does the immediate tax shelter benefit offset the future liability of the promissory notes? The method used to answer the questions posed is to examine the current literature on motion picture investments, examine the legal framework of the investments and examine the relevant income tax legislation. Actual motion picture investments are reviewed and a quantitative financial analysis is undertaken to determine the net outcomes to investors under various circumstances. National Revenue, Taxation is the body of the federal government which interprets and administers the Income Tax Act and Regulations. The terminology of the Act is not always precise therefore the tax department must interpret the legislation in accordance with its mandate which is to collect as much income taxes as possible. If a taxpayer disagrees with National Revenue, Taxation's interpretation he has the right of appeal to the Canadian judicial system. At the present time the courts have upheld National Revenue, Taxation's position that a taxpayer is not entitled to claim a capital cost allowance deduction for any amount that he has not personally committed to the motion picture investment. This study evaluates through quantitative analytical techniques the financial outcomes to an investor who invests in a motion picture with and without the leveraged tax shelter facilitated by the signing of promissory notes. A motion picture investment model is designed which generates the net present value of a motion picture investment over a seven year time horizon. Two hypothetical investor income levels are used to evaluate investment in educational video tape programs and theatrical feature length motion pictures. Assumptions are made about the distribution receipts of the two types of motion pictures. The net present value of the investments are found. The outcomes are compared and contrasted and conclusions are drawn. The primary conclusions are that an investor must have a marginal income tax rate greater than fifty percent of his taxable earnings. The motion picture investment must have a structure which facilitates leverage of the investor's initial capital investment for income tax purposes. The future liability necessary for leverage must be at least partially offset by a minimum distribution revenue guarantee. The leverage will reduce the investor's potential loss through the reduction of income taxes. However, the investor will not realize a net gain unless the motion picture earns revenue exclusive of the minimum revenue guarantee. If the motion picture does not generate any net distribution revenue for the investor he will be liable in the future for the promissory notes that facilitated the tax shelter Therefore, motion picture investment decisions must be based upon careful and detailed examination of the international commercial merits of the motion picture property. / Business, Sauder School of / Graduate

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