The Canadian Taxpayers Federation (CTF) yesterday added its voice to the growing chorus against proposed legislation that would subject Canadian investors to annual tax on unrealized capital gains from certain foreign investments.

Walter Robinson, Ottawa-based CTF federal director, compares the federal Department of Finance's excessively broad attempts to crack down on off-shore tax evasion to "fumigating an entire city block to kill one cockroach found under someone's kitchen sink."

By casting far too wide a net, the government would be penalizing law-abiding savvy investors, Mr. Robinson said, urging them to speak out before a Sept. 1 deadline for commenting on the proposed law.

Draft proposals authored by Finance and the Canada Customs and Revenue Agency in June were aimed at rooting out offshore tax evasion -- and justifiably so, Mr. Robinson says.

Unfortunately, they "are also poised to penalize Canadians who legally and transparently invest in various U.S. investment vehicles."

The proposal would tax a wide range of foreign investments that have accrued capital gains.

Capital gains that accrue in the price of various U.S. investment vehicles -- exchange-traded funds (ETFs), some U.S. stocks, closed-end mutual funds and foreign investment trusts -- held outside the foreign content protection of an RRSP or RRIF would be subject to the taxes even though investors do not sell these investments.

"This is offensive and patently unfair," Mr. Robinson says. "These investors are using their after-tax dollars to build retirement nest eggs which will now be subject to tax simply because they are growing. It's similar to taxing cottage owners on the appreciation of the market value of their cottage even though they haven't sold their cottage."

Mr. Robinson characterized the tax as yet another "massive tax grab" even though Ottawa is already raking in billions in annual surpluses. "These proposals are flawed and wrong," Mr. Robinson said, adding that investors have only three days left to voice their displeasure to Finance officials.

In August's The TaxLetter, tax lawyer David Louis notes the irony that "the proposals could turn out to be the biggest headache for small investors buying a piece of a larger investment, and who least expect to land in an international tax quagmire."

While most observers missed the full implications of the legislation when it came out in June, the story has been widely publicized since the National Post revisited the story in mid-August.

The CTF's position -- entitled Take this tax and shelve it -- can be found at the group's Web site at www.taxpayer.com.