NEWS WATCH
On Friday June 22, the Canadian Senate approved Bill C-52, which includes the trust tax rules that impose more than a 31% tax on distributions to unit holders effective in 2011. It fulfills the Conservative intentions to tax trust owners as announced on October 31, 2006 in a surprise reversal of Party policy and public promises.
Not all political parties are committed to letting the Bill stand as law. But change will only come with new results in the next election.
Not all financial experts see a clear way to enact the law in 4 years time. And many of the income trust executives in Canada, particularly in the energy sector, see need to lie down in their fight against the “Tax Fairness Rules”.
The tax has been described as onerous and blamed for hurting investors by destroying their sources of income, particularly important for retirees. The tax has been blamed for the sell-off of public companies into the hands of private equity as well as the sell-off of Canadian based businesses into foreign hands. More than two dozen income trusts have either been sold or have engaged in an exploration of sales opportunities.
Passage of C-52 is marked in time by the nearly simultaneous announcement that 182-year-old ED Smith, the jam maker in Ontario had been sold to an American pickle maker. Bruce Smith, the company CFO is quoted by John Partridge in the Globe & Mail, as saying, “I would say it’s highly unlikely this process would have taken place without the change in the legislation. It created challenges for us to raise capital and was one of the leading reasons we got into this strategic review process.”
The Minister of Finance, Jim Flaherty, has repeatedly denied that he or his government should take blame for the perceived negative consequences of their legislation.
Meantime, some Ottawa insiders report that further market-controlling legislation may be in the works to clamp down on foreign sell-offs. However, that is not saying much. As the trust tax news announcement came as such a surprise with such devastating effects on market prices, market participants are living in “disaster mode” so that nothing can really be a surprise.
Liberal Leader Stephane Dion has said that the changes to the tax system introduced by the Conservative government has threatened the competitive ability of Canadian businesses. Specifically, new taxes on income trust distributions have resulted in more than a dozen foreign takeover attempts in less than half a year. The trust tax, along with other government policies could threaten Canada’s economic sovereignty, according to Mr. Dion.
He is proposing specific remedies to what he describes as mistakes.
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.
Another new group has jumped on the political band wagon to decry income trust taxes. At a press conference hosted by independent member of parliament, Garth Turner, CRIIA announced that it has arrived.
The group says it was formed to represent the interests of the millions of ordinary Canadians who are trying to cope with those difficulties facing retirees and pensioners. The group said that, “Canada’s population is aging. Two-thirds of our workers have no employer pension plan. Those Canadians have to save on their own for their retirement...Once retired, they then have to generate enough income off their savings to pay the bills. Increasingly, these people find themselves on the short end of the stick as interest rates and income returns have fallen and, more recently, as some government policies work against them.”
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.