NEWS WATCH
The schedule has been set with an interesting set of presenters offering a potentially diverse range of ideas to the committee including people with some wonderful information along with opening witnesses including those with questionable data.
The quality of committee members’ questions makes or breaks the value of the hearings.
2 Hours on Tuesday January 30th - (changed) Witness List 1
2 Hours on Thursday February 1 - (changed and possibly further changing) Witness List 2
Where will the allocated additional 2 hours come into play? Who will have a say at that point? We will watch the Finance Committee Web site and schedule.
The meetings will be “televised”. If so then, it would be useful to watch the hearings and compile here, any and all key questions that need to asked, but aren’t within the hearings.
A note sent this week to call for “factual hearings” was rather tame, but provided as an example, questions related to the first witness - Diane Urquhart. The iTrust Institute’s initial comments and questions triggered positive response from government officials and others.
How best to engage in the process if not on the witness list?
The Institute is consolidating a Brief and a list of questions with pertinent factual background to provide Committee Members on an iterative basis. Tuesday questions gathered for Monday. Questions from the first session set out for use Thursday. Tuesday and Thursday questions and background gathered for the 3’rd leg in the Committee process.
Thoughtful member, guest and advisor input is .
ADDENDUM
In its wisdom and with leadership from Liberal members of the Finance Comittee, it has decided in a brief third day of closed-door discussion, to assemble a third day of public hearings for February 13.
CONTRIBUTIONS BY THE INSTITUTE
iTrust Institute Follow-up Brief with Facts for Hearings 2007-02-01.pdf
The non-partisan research and education organization, iTrust Institute has warned that the pending hearings about income trust tax are of significant importance to all Canadians.
The Canadian parliamentary finance committee announced that it will sponsor a series of public hearings and provide a platform for interest groups and financial experts to comment on a decision by federal Finance Minister Jim Flaherty to impose taxes on income trusts in 2011.
COPY OF LETTER TO MEMBERS OF PARLIAMENT
I am writing to you as the volunteer President of a not-for-profit, non-partisan research and education organization, iTrust Institute. The Institute was formed in response to the Department of Finance Consultation on Flow-through Entities in 2005 in the interest of supporting informed policy formulation and decision-making.
The Department of Finance announced rules for income trusts that allow existing entities to double in size by 2011 without giving up tax-free status. In addition, trusts will be able to convert back into a corporate structure without triggerin capital gains taxes or other tax consequences. There are limits, however, that will ensure taxes are most burdensome for the most profitable businesses.
The government continues with its rules, but now seems to be making efforts to reduce “impediments to conversion,” by trusts back into ordinary securities. Additional rules are described as being “designed to make it easier for these significant changes to happen in Canada and at the same time we get to the level playing field four years from now.”
The announcement of guidelines came on Friday following a federal-provincial meeting of finance ministers. Doubling in size now defines the upper limit of “normal growth” according to the government as it has previously announced new taxes and an interest in “restraining” income trusts.
Specifically, the notion of growth is related to market capitalization. New taxes will not be applied immediately, but will be applied to tax distributions as now planned, starting in 2011, if “growth” is less than either $50 million per year in market capitalization or no more than 40% in 2007 and 20% each year after that. Such growth in market value is considered cumulative so that growth later may be allowed if there is no growth now. However, the $50 million annual limit for small trusts will not be allowed to carry over from year to year.
Equity growth will not be considered growth if it involves replacing debt with equity as long as that debt either replaces debt outstanding as of Oct. 31 2006, or is issued subsequent to that date. On the other hand, if new debt is issued and then later converted into equity, the new equity value will be considered as part of the normal-growth limitations.
Any mergers or reorganizations of existing trusts will not be considered growth “to the extent that there is no net addition to equity.” This is a policy that would seemingly allow for mergers and acquisition activity in coming years, a trend that has become significant in the oil and gas sector.
To complicate matters and add a burden for policy administration, however, the Minister of Finance suggested that all pending trust deals will be allowed and measured against the rules.
But trusts will also have the right to ask for permission to grow more than the limits if managers see their company as having a special case. Managers will be seeking to explain transactions or situations to ensure their company is viewed as a special situation for purposes of meeting government guidelines.
The Department of Finance has just turned the trust market into an opportunity for “special interests” alone. All others will, in the normal course of business, be allowed to growth only within limits. This is despite the government statement that there is concern about lack of growth or productivity in the trust realm.
The net impact: Guidelines may be deemed unworkable by profitable and growing companies upon whom the burden of new tax is most likely before 2011 unless they spend additional money on debt refinancing or reorganization.
iTrust Institute is studying the key features, perceived potential & benefits of income trusts starting from the premise that:
Equities managed and structured like income trusts to flow net gains through to owners by way of frequent and regular distributions of cash can offer superior rates of overall return, support market growth, enhance economic productivity and contribute to growth of the tax base with less risk than other equities given honest managers and a fully competitive market supported by open communications.
We will test this notion and explore related questions.