Stephen Harper, leader of the Conservative party, has pledged “not to change the current generous tax treatment of income trusts” if his party took power and he replaced Liberal Paul Martin as Prime Minister.

Harper said that, “A Conservative government...will not allow the Liberals to tax income trusts.”

The issue has become part of his considerations in discussions with opposition parties about how and when to bring down the minority Liberal government.

Finance Minister Ralph Goodale set the Consultation Paper in place and initiatied a consulting process to consider new tax rules and regulations of flow-through entites. As media outlets like Reuters is reporting events today, they say, “Ottawa sent shockwaves through the popular income trust sector in September when it froze advance tax rulings for income trust conversions amid concern about lost tax revenue.”

Mr. Harper’s pledge offers some sense of near-term certainty sought by investors.  But it also pins market solidity to political process. And depending on the outcome of the next election and Ralph Goodale’s desire to respond politically, questions about income trust taxes and policies may remain unanswered for a very long time.

Taxes and policy are not simple considerations.  Even dividend tax credits and the idea of eliminating double taxation on corporations is not a simple consideration given the unique nature and current state of Canadian markets and policy regimes relative to other markets, and given Canadian social and political priorities.

Canaccord suggests in another sector report that, given the sector’s decline over the last few months, investors ought to look at trusts that have already fallen so far that a tax change may not impact their value. Specifically, they recommend a portfolio of trusts (below) and say that “Trusts could still go up or down, depending on the government’s actions, but after seeing around a 15 per cent reduction in unit prices related to this issue already, the downside is less than it was. So investors willing to invest in the area should realign their portfolios to limit their downside risk but still be able to participate in a possible rebound in the sector.”

This week, iTrustInstitute invited Canadians to participate in thoughtful dialogue and an exchange of perpsective on these questions by joining the Institute and attending its December 14 . The aim is to bring together people from all sides of the market to address significant policy concerns referenced by the government Consultation Paper.