A few dozen income trust executives and bank analysts got together in Calgary to discuss what needs to be done in response to the government freeze on trust tax rulings. That action by Ottawa was perceived as derailing the process initiated with its Consultation Paper and turned attention to federal Department intent to shurt down the market.

Speakers at the session included someone from RBC Dominion Securities Inc. who suggested that back-room politics are not working.  Trusts are not winning favour in Ottawa.  Officials there will only listen to a vocal public and audible concerns from trust issuers.

Discussions focused on three possible strategies that might be taken by trusts:
- Lobby Ottawa privately;
- Mobilize unitholders to contact MPs directly;
- Provide direct feedback on how best to deal with questions raised by the consultation paper.

John Dielwart, CEO of ARC Energy Trust said that, “Many of us have been silent...that is going to change...I can’t imagine there’s a more significant issue on any CEO’s desk than this one. 

Don Gray, CEO of Peyto Energy Trust, said he felt that the Finance Department “hasn’t been forthcoming about the hundreds of millions of personal income tax dollars it is collecting on distributions that wouldn’t exist otherwise”. 

In a discussion with TrustInvestor, Don wondered where the information was in the Consultation Paper that allowed people to define the questions in a meaningful way, let alone attempt to answer anything.  With his informative approach, Don has agreed to present at the iTrustInstitute Roundtable Dec 14.

Some trust executives suggested that the government intervention following the release of the Consultation Paper had changed the way the market and trusts operate.  At a minimum, uncertainty about policy had diminished company ability to raise capital.

Excecutives from High Arctic Energy Services Inc. said that it would urge unitholders in its quarterly finanical mailing, to contact the government to express concerns. Its an enabling move that is similar to the activist approach taken by Canaccord Capital when Chris Rankin released his analysis of government tax concerns.

Prior to the Calgary meeting, a number of trusts have made statements about their concern over Ottawa’s moves.  As reported by TrustInvestor, these vocal trusts include Superior Propane, A&W and Yellow Pages.

With its last quarterly report, A&W Revenue Royalties Income Fund put a hold on changes in its distribution rate in order to maintain a war chest of cash in case changes in tax policy adds a cost to trust operations. Now, Paul Hollands, the CEO of A&W said that his group might speak to MPs in ridings where the burger chain has restaurant locations. 

A&W shows the real impact on trusts caused by government changes to administration of the sector.  Existing trusts have to be prepared to make real changes in the way they manage their business if there are tax or government policy changes.

Larger trusts are preparing to protect investor value by considering significant alternatives. For example, Christopher Lischewski, CEO of Connors Bros. Income Fund, said that it is consulting with legal and investment advisors to consider altneratives to the current situation. Alternatives could include:
- Moving unit listings from the TSX into another market;
- Restructuring of the current trust form used by the company;
- Buying back units to take them private again;
- Merging with another company.

The practical impact of such a response to Ottawa: Many changes could shift the existing tax base out of reach of the Canadian government as trusts move their value of the public equities exchange in Toronto.

The situation was characterized as challenging by George Kesteven, president of the Canadian Association of Income Funds. But with meetings and actions by trust exectuives, the challenge is a clearly a “galvanizing force” on the trade organization.

Perceptions, vocalization and politics aside, the kind of preparations for pending policy changes being made by Connors Brothers, should wake up both Ottawa and the TSX to the serious implications of government policy changes in the market for trusts.

The Calgary meeting adds weight to a growing response to and concern about Ottawa’s freeze on tax rulings.