NEWS WATCH
A majority of Canadian members of parliament voted in favor of the Conservative government plan to tax income trusts other than passive real estate investment trusts (REITs).
The Canadian Taxpayers Federation (CTF), a national lobby group, put out a Taxpayers Federation Press Release saying that the, “morning after Mr. Flaherty’s announcement the CTF received a call in Ottawa from the department of finance. The government official wanted to assure us the 2007 Budget will contain additional tax relief for all Canadians. And should we believe this? Increasingly it appears voters will go to the polls in the spring. Prime Minister Stephen Harper will need to give Canadians a powerful reason to re-elect his government. Significantly lower personal taxes will prove to be a powerful vote getter.”
While everyone is talking about the pain and burden of new taxes, the CTF concludes that “Ottawa’s overall tax bite has been reduced. As such, the finance minister’s policy prescription is – on balance – supported by the CTF.”
The group acknowledges that “The investments of many, many Canadians were impacted when the stock market tumbled after Oct. 31.”
But their sense is that the Minister of Financed has “corrected a corporate tax discrepancy by imposing a new tax. His reforms end the tax advantage for some investment instruments but lowers taxes on businesses as a whole. The pension splitting benefits seniors and opens a new avenue for family-friendly income splitting.”
The Canadian government has announced that it will establish a new tax “fairness” plan that promises to institute new taxes on distributions to unit holders from publicly traded income trust and limited partnerships. Unit holder values will be hurt as the commitment to new tax raises the bar for companies hoping to attract capital by delivering returns to investors.
According to a research report by RBC Dominion Securities Inc., the Telus Corp. decision to convert into an income trust will deliver more taxes, not less to Revenue Canada.
Senior economist and Professor Jack Mintz was reported in the Globe & Mail as saying, “The Conservative government may abandon its hands-off approach to income trusts if another rash of big companies convert to the structure or if the next Liberal leader leads a crackdown on the investment vehicles.”
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.