We, Canada's largest independent investment fund manufacturers, are writing to share with you our deep concerns regarding proposals by two provinces to adopt the harmonized sales tax (HST). We believe the HST will have a grave impact on the savings of your clients, and ultimately, affect the long-term growth of your business.

To help bring about change, we are asking you to lend your voice against this new tax on savings.

The tax dollars involved are staggering. Canadians will end up paying hundreds of millions of dollars in additional taxes through their investment funds. That's on top of the more than $650 million in GST they already pay. And the tax grab will continue year after year.

Ontario and B.C. plan to introduce the new tax in July 2010. Manitoba is considering the HST as well. However, we expect that investors across Canada will be affected by these new taxes because the pooled structure of investment funds makes it very difficult, if not impossible, to charge the appropriate provincial tax to an individual investor.

At present, investors pay the 5% GST on the management fee and certain operating expenses of investment funds (mutual funds, segregated funds and ETFs). Under the HST, that tax will balloon to as high as 13%, which is the proposed rate for Ontario.

Canada is unusual in its punitive treatment of investment funds. Other jurisdictions with value-added taxes similar to the GST, including the U.K., France, Australia and New Zealand, provide rebates or exemptions for investment management fees.

We have many concerns about the HST and the harm that it will cause to the future savings of Canadians, including:

A new tax on savings

The HST will directly impact the savings of Canadians who own investment funds - costing individual investors hundreds if not thousands of dollars in extra taxes that would otherwise enhance their retirement savings. This tax starts the moment the investment is made and continues every year. This means Registered Retirement Savings Plans, Tax-Free Savings Accounts, Locked-In Retirement Accounts or workplace savings plans will cost investors more.

Canadians who do not have a company pension plan or who are not a part of the government workforce have to fend for themselves in saving for retirement. The growing number of Canadians who are responsible for their own retirement savings are disadvantaged because they use investment funds as their primary savings vehicle.

Quite simply, the HST penalizes savers and investors at a time when many Canadians are trying to rebuild their nest eggs after last year.

Consider an average investor's $20,000 holding in a mutual fund. If this investor contributes $4,000 each year, we estimate that over a 20-year period, at a 13% rate, the HST could mean an additional $4,000 in taxes. This investor could lose an entire year's worth of savings.

The HST is discriminatory - Two wrongs don't make a right

Like the GST, the new tax does not treat investment products equally. Only mutual funds, segregated funds and ETFs are subject to the five per cent GST. The new tax means investors in these products will now pay the HST.

Yet other investment products and services - a list that includes brokerage accounts, savings accounts, guaranteed investment certificates (GICs) and government pension plans - currently pay little to no GST and will receive similar treatment under the HST.

Like the GST, the HST unfairly penalizes Canadians who own investment funds. Two wrongs do not make a right.

Geographic inequity

As mentioned above, Canadians outside Ontario and B.C. may effectively become subject to the two provinces' sales taxes because of the pooled structure of investment funds. These investors could end up paying tens of millions of dollars in new taxes.

In addition to raising our concerns with the financial advice community, we are sharing our views with federal and provincial politicians across the country. We appreciate you lending your voice to this effort. We are asking advisors from across Canada to write their government representatives, at both the provincial and federal level, to urge them to bring about changes, and fairness to how the GST and HST are charged to investors. Investors should not have to shoulder this additional tax burden.

To assist you in these efforts, we are providing a detailed backgrounder on the HST and its implications, along with a template letter you may use to write to your elected officials.

Please contact any one of us if you require any support or further background on this unfair tax.

Thank you for your support.