Winnipeg Free Press

Winnipeg Free Press (Newspaper) - March 12, 1977, Winnipeg, Manitoba 11 Winnipeg free press saturday March 12, 1977 business finance executive group urges big changes in taxation by Wally Dennison Canada s taxation Structure should be overhauled to permit personal income tax cuts for upper income earners and an easing of business inventory valuation procedures the financial executives Institute Canada recommends. These Are two of five proposals contained in a Brief to be presented next week to finance minister Donald Macdonald As avenues by which Canada can achieve its capital forma Tion needs of some billion Over the next decade. Pointing out that size of outlay will be required to meet the nation s social and economic goals Over the next 10 years the Institute also recommends amending the capital Cost allowance system to recognize the Impact of inflation. Introduction of indexing for capital gains valuations. Permitting consolidated income tax returns by Multi corporate groups of companies. Existing taxation policies however inadvertently have become confiscatory in periods of High inflation the Institute emphasizes. There is a real and pressing need for the government to review its taxation policy and to make changes which will substantially accelerate the rate of saving in the broadest economic governmental failure to recognize the need for a fair and equitable tax Structure for example could significantly impair future investment in Canadian manufacturing the Brief warns. Because Fei Canada is a National organization of about 800 members representing More than 500 businesses its policy statements draw strength from its uniqueness and from the fact that its positions Are determined by members who constantly Deal with real problems on a Day to Day the Brief states. Membership according to the Brief is on the basis of senior financial responsibility in a company of a certain size. Accordingly it is fair to state that the Institute is Che Only organization representing senior financial management in High personal income tax rates have seriously reduced the saving potential of Canada s taxpayers at a time when there Are forecasts of huge demands for funds to support investment the Institute s paper notes. No one questions the fairness of graduated personal tax rates As a spreading the tax Burden on an ability to pay basis the Brief states. However there has also crept into our tax system a concept of redistribution of wealth that has High marginal rates have impaired saving by higher income earners. Some experts argue that the High marginal rates Are a very real disincentive and because of. The Small potential future Reward for High Effort the country May Well be losing the future optimum contributions of Many Bright Young lowering of the higher marginal rates of income tax could be accomplished in annual increments Over a few years the Institute suggests. Thus the Impact on the amount of taxes collected would be minimal. Rates also could be lowered the Brief adds through such tax exemptions As deductibility of mortgage interest and real estate taxes joint family tax returns higher limits on the present exemption of for interest and dividend income. Urging More flexible inventory valuation procedures the Institute contends that inventory profits should enjoy a tax free status and therefore recommends that businessmen be allowed to choose the life last in first out method of inventory valuation used in the United states. Canadian business capital burdened by excessive inflation in recent years has been weakened through the taxing of profits based on the difference Between current Selling prices and the historical Cost of goods sold rather than on current replacement costs. The Canadian inventory accounting method is known As Fifo first in first out and is far More rigid than the . Life option which produces lower taxable volumes and thus much better Cash flows. Under life goods purchased and costs of their Sale Are recorded conservatively in the financial statements thus cushioning a company against inflation. For example if a company buys a widget at on March 1, buys another for on March 10, and then Sells a widget for on March 15, the life method would permit use of the March 10, or latest widget buying Price in determining profit on the company s Sale. In this Case it would be under Fifo calculation of profit on the Sale would be on the basis of the March 1, or earliest widget buying Price that is first in the profit thus would be fifty per cent corporate tax on the life profit of would thus show a tax on the return whereas so per cent tax on the Fifo profit of would turn up As tax on the return. Therefore companies using a Fifo inventory would be left with just after subtracting the profits tax from the Selling Price probably enough to cover just the Cost of replacing the inventory. In contrast life would leave after subtracting the profits tax from the Selling or an extra Dollar which it could Well use for expansion after replacing the inventory. Recognizing that the government could be reluctant to adopt the life because of tax Revenue losses Fei Canada suggests the change could be phased in Over perhaps five years. This could be done by claiming 20 per cent of the Cost of switching As an annual charge to taxable income in each of the five years following the introduction of life. As for capital Cost allowances the Institute s Brief charges that the finance department s review of them last May failed to recognize the Impact of inflation on business savings. The system has and still does provide a source of funds but by refusing to Amend a system that was not designed to Cope with inflation the Federal government is effectively taxing Relief could be obtained in several ways the most preferable of which is creation of an ability to depreciate More than 100 per cent of original or indexed the Institute states. Referring to capital gains the Brief observes that it s hard to believe the legislation which introduced taxation of them was passed with the intention of taxing capital yet during inflation that has been the Law s very effect. The Brief stresses. Pointing out that the Federal government has capital needs no less severe than those of business the Institute argues that it would be in the Best interests of both govern ment and Commerce to provide a form of indexing for capital gains calculations. And permitting filing of consolidated tax returns the Brief explains would improve the competitive position of Canada s industries. Since Canada s major trading partners particularly the ., use consolidated tax returns the government should move quickly to improve Canada s competitive status by allowing Canadian firms to do likewise. A consolidated tax return would allow a Large Corpora Tion with groups of companies to pay Jax on just the difference that results from deducting the losses of some of its divisions from the profits of others. For example if one division turned in a million profit and another lost million the corporation would pay on just the million. Currently in Canada that same corporation would pay tax on the million profit. The other division s loss would be ignored. Conceding that technical problems could complicate introduction of a consolidated approach the Brief nonetheless notes that the ., the United kingdom and other countries have proven they could be overcome. Besides Fei Canada Points out that consolidation of associated or controlled companies is a generally accepted accounting principle and corporation and securities Law recognizes the propriety of viewing Multi corporate Struc Tures in a consolidated format. Franchise Challenge does 9t worry Large Winnipeg real estate firms Large Winnipeg real estate firms know the yellow jackets arc coming but they Don t expect to get stung. The assault began last de Cember when Small i Depeu Dent broken were approached by a fast growing franchising organization called Century 21. Organisers promised to give Low profile firms the mass recognition needed to take an the big name companies. For a tee they could join the Western Canad an firms and mar Gold jacketed salespeople who have already handed together i order to make Century 21 a Hona enold term. And although tit Totmin for Large firms agree the name National firms offering coast to coast listing ser vices they Don t feel Century 21 can threaten their Market a circular two Inch in Buffalo . Had us in but w. E. Cowie Century 21 marketing director says he has signed up 11 Manitoba realtors and expects to have m or is More when Media advertising begins april 15. The which Are under 15 salespeople i size retain Complete control of their business but will Bene fit by a stronger image derived from a common name better sales training and eventually nation wide natural 9m referral system where fran Chise members Trade leads and listings Cowie said. The franchise fee h plus six per cent of the firm s annual Gross and an additional two per cent far advertising. Bob Lane president of Campbell. Lane and Hali Burton Ltd. Was the first local realtor to join i watched the erosion. Of my Homem by the Multi office map anti Over the past six or seven Yean. You try to develop ideas to compete. You took at sales motivation Al programs image Adver Tising but 1 did t have the time expertise or Century 21 was the answer he said. The franchising idea began five Yean ago in California Groweg to about us Mem Ber firms and salespeople at last count the recorded billion i Gross safes last year and had net earnings of and Block Cowie said. Small firms can realize dramatic benefits from the exposure and referral net works the Large companies now enjoy. After All a major company is one whose name is easily recognized by the Public he said. People will Deal with whoever seems to have the action going on the and with 21 Century 21 branches in Winnipeg who do you think the Public b going to think is the major real estate Media advertising should also reinforce an image of bigness created by a Forest of Century 21 Lawn signs around the City he said. Century 21 jumped the Bor Der to Vancouver 15 months ago and has been moving East at a rapid clip. Canada heats probably greater growth potential for the organization became of the Market configuration. Here in Canada we have major companies dominating the Market Trust companies and Large nationals like a. E. Lepage Melton Vancouver broker before he joined the Century 21 executive feels both sales people and customers would be attracted to the organization because bigness implies Suc Cess. We think we can collectively have More of the mar Ket than the eight to ten big companies who May have a h per cent Market share he said. In Houston Texas Century 21 and the other major franchiser red carpet control per cent of the Market and it can happen anywhere he Felt. However executives of Royal Trust Mckague Sig government launches Campaign to boost Industrial output Ina Frank about economic problems peking Reuter the people s daily reports serious Energy food and Industrial problems in China with unprecedented frankness As the government launched a Campaign to boost the Economy. The people s daily saying problems should not be hidden from the describes economic shortfalls in the most forthright language observers can remember. The newspaper Speaks of temporary difficulties in Indus trial production and temporary Coal Supply in the Fertile province of Shantung it says 10 million people have been mobilized to fight a serious drought the situation continues to Worsen seriously affecting the Normal of wheat the reports were linked with a Campaign of rigid econ omy in Coal Oil and electricity and a simultaneous movement to encourage socialist Competition among workers to boost production. We must Send every ounce of Coal every Watt of electricity and every drop of Oil we save to the places it is most needed in revolution and the people s Dally says. V wide publicity was Given to factories that have conserved Energy and Canton s Nan Fang daily says workers at the City s no. 3 steel smelting Plant pushed ahead with product Ion despite shortages of raw analysts believe labor unrest is still a serious Handicap i some areas. Travellers from Shanghai today reported seeing posted a demanding higher wages pasted up on the City Centre municipal revolutionary committee building. And a radio broadcast from China s troubled Southeastern province of Fukien quoted delegates at a local conference As having said individual farming speculation and profiteering in the Region has not yet been eliminated. The moves to improve the Economy follow a year of natural disaster political turmoil and widespread worker Apa thy. Analysts estimate China s Gross National total value of goods and by Only 3.5 per cent in 1976, the smallest increase since the mid-1960s cultural revolution. Before the current drought Many areas suffered serious flooding resulting m a poor Harvest last year and food shortages. Peking has had to buy More foreign six million tons for delivery this year from Australia Canada and Argentina with the probability of More from the . Last july s Tangshan earthquake was a major blow to National Industrial production. Apart from killing about Peop effectively curtailed production at the country s of cooking Coal. Regulatory changes urged in banking Ottawa up the rapid expansion by chartered Banks of their overseas business requires some regulatory changes because of the risks to which they Are exposing themselves says a study released Here by the economic Council of Canada. Wayne clan Yennhi the study s author says risks the Banks Are taking do not warrant direct prohibitions or limitations on foreign cur Rency activities but instead a More Active monitoring and supervision role on the part of Canadian Between 1964 and 1974, chartered Banks total for eign currency assets in creased five times the study notes. By 1974, these assets made up almost per cent of Banks total assets an in crease from 22 per cent in 1964. The Banks have been expanding their foreign operations More than Domestic business Teu meaning says. Considering that major uncertainties Are Likely to continue for the next few Yean in the International Mone tary system the Federal get be concerned about the Banks International exposure to risk Clendenning suggests that information should be Gath ered on worldwide operations of Banks snowing their foreign currency assets and liabilities booked in Canada. Quebec pension fund data should be published director Quebec government should publish statistics on the contents of pen Sion fund portfolios to Snow How much of the billion que Heckers have paid into pension funds Are invested outside of Quebec says the director of Fiducia in que Bec. Marcel Lizee Tom the Trust company s annual meeting that French Canadian Trust companies control Only seven per cent of the billion paid into pension funds by que Beers. The rest is controlled by English Canadian Trust companies such As Royal Trust and Montreal Trust which invest a substantial portion of these savings outside the province he said. Lizee cited Royal Trust which indicated in its annual report that Quebec accounts for 27 percent of its revenues but for Only 16 per cent of its mortgage Loans. What kind of a commit ment to Quebec can these fund managers Liwe asked. This Money it Long to the workers of Quebec and must first and Foremost serve the Community Fin which it it becomes More More obvious that the weak Ness of French canadians is caused less from the Lack of capital than from the Lack of the control of Fiducia do Quebec is a subsidiary of the federation de Quebec Des Crisses popu Laires Desjardins the pro Vince s co operative credit Lizee said the Fiducia can offer a return which is equal to or higher than most English Canadian firms. He supported this state ment by quoting the results of a study by a Toronto firm on the performance of 3t funds managed by insurance and Trust compan ies. Mar and Aronovitch and Leipsic Felt a successful Cen Tury 21 operation would t erode their business. But All the medium sized companies too Large to afford paying six per cent of sales to Century 21 but too Small to have a secure Niche Are watching the trend closely. Lane said. The medium to Small companies stand to lose most if Century 21 sales take off. Said Murray Sigmar of Mckague Sigmar. His company which employs More than 159 salespeople would not suffer but i think it s becoming More difficult for Small business to v Able to and Century 21 would increase Competition he Felt Lane suggested the Small firms will have to join sooner or later. I can almost guar Antee you that within three months there la be people standing at the spokesmen agreed Success of Century 21 depends heavily on Strong executive management a High degree of professionalism. Lane said Century 21 has a sophisticated sales training program and Strong Stan Dards of conduct members would adhere to. Other fran Chise firms have failed for Lack of these features he said. Brokers councils Are set up in each Community and Tough rules and regulations Are drafted. As Well they members Are sharing a name and that s the Best policing the fire Cowie said. Further the company will offer extensive training courses conferences and conventions run by experts in marketing psychology be said. There will be 40 Region Al training directors devel Oping programs. We have train the train or programs. We even train the this professional training is a great plus for the Small realtor. You can buy tapes and books and you do it for three weeks and you drop it Lane said. With Century 21, this function is done fur you Cowie said. At any Rale the Strung Public image will represent the biggest Boon and its effectiveness has already been proven. For example the City of Dallas once passed an anti sign bylaw which mistakenly forbid real estate Lawn signs. Century 21 removed the signs but left the posts in place and people still recognized Homes As Century 21 properties he said. And for the Salesman it s the Best of both worlds. He can enjoy a Large National image and still have Coffee with the troubled Massey reports profit dip Toronto up Mas sey Ferguson Ltd., beset by labor problems and economic uncertainties in some of its foreign operations reports sharply lower first Quarter earnings. The company s annual meeting was told Here that net income for the three months ended. Jan. 31 was million or three cents a share compared with million or 63 cents a share for the corresponding period a year ago. Consolidated sales for the first Quarter were Mil lion Down from Mil lion in the first Quarter of 1976. It is the first time since the beginning of this decade that we cannot report Quad Terlaj Progress in said Albert Thornbrough presi Dent and chief executive offi cer. Or. Thornbrough attributed the decrease in sales and income primarily to a drop in tractor production result ing from a strike at the com Pany s Plant in England and to an adjustment of brazilian production due to economic problems in that country. As the meeting was in Progress however or. To Hombrough Learned that the strike in Coventry England was settled and the full workforce of there would be Back on the Job. Thus the Outlook for the year is for the first half to be heavily penalized but the second half to operate at rec Ord or. Thorn Brough said. As reported earlier net in come for 1976 was or a share compared with or in the previous year. The company reported worldwide farm machinery sales of million for the first Quarter a sex per cent decline from the same period a year ago. However Industrial and construction machinery sales of million in creased by 6.6 per cent and engine sales of million were up by 11 per cent sales from smaller operations to talled million. Sales in the company s two major America and Europe showed gains. In North America first Quarter sales of Mil lion were up by 3.7 per cent with Canadian sales up by 25 per cent and United states sales unchanged from 1976 period. The company s european operations particularly Strong in Germany and Italy had first Quarter sales of million eight per cent ahead of the 1976 period. At the same time sales in Australasia advanced by seven per cent and in Africa by eight per cent ;