The findings of a survey by PricewaterhouseCoopers (PwC) has been released to show that, “A review of Canada’s more than 250 income trusts indicates that trusts have been making an important contribution to the economy, investing their capital and growing their businesses at impressive rates.”

The trusts considered included companies from “sectors as disparate as food products, telecommunications and finance as well as traditional oil and gas royalty trusts and real estate income trusts (REITs).” The clear conclusion is absolutely “counter to the contention of the federal government that income trusts do not reinvest in their business and amount to a long-term dead end for Canadian businesses.”

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QUOTE from Gordon Tait, trust analyst at BMO Nesbitt Burns, Calgary, following his study publication entitled “An Inconvenient Truth About Trusts”.

We looked at 126 businesses that converted from equities to trusts between 2001 and 2005 to prove that Ottawa reaped more, not less, tax revenue after firms converted to income trusts...We found that on average the government stood to collect 2.2 times more in taxes by taxing the distributions of the trust than had been paid by the corporations prior to their conversion.

From an Article By Steven Chase
in the Globe & Mail, Report on Business.

The study indicates that in BMO analysis, the problem with trusts appears because “Canada does not have a fully integrated tax system” And “The minister did not create this system and previous finance ministers failed to deal with it.”

Mr. Tait suggests that the pending 31.5% tax on distributions might best be imposed on only trusts held outside registered retirement savings accounts and pension funds.

He believes the tax measures “will effectively discourage or prevent corporations from converting to trusts”, but, “more than level the playing field” and causes “unnecessary harm to seniors”. He says that, in fact, “Trusts have produced higher returns with lesser volatility than regular equities”.

The firm Blake, Cassels & Graydon, LLP is a leader in both Canadian tax and structured finance law.  It issued a bulletin entitled ”Canadian Minister of Finance Announces a Proposed New Tax Regime for Income Trusts and Public Limited Partnerships - November 2006”.

They said, ”On October 31, 2006, the Minister of Finance announced significant changes to the taxation of publicly-traded income trusts and partnerships. These changes have been brought on by the recent announcements of a number of large Canadian public corporations that they intended to convert into income trusts. However, the Minister also said that the proposals are the result of “months of careful consideration.” The Minister has concluded that, although the 2006 federal budget proposal reduced the rate of federal income tax on dividends received by individuals, this did not sufficiently overcome the benefits to corporations of converting into income trusts because the reduction did not address the significant tax advantages enjoyed by non-residents and tax-exempt investors. As a result, the new proposals create a tax regime for publicly-traded trusts and partnerships and their investors that is similar, but not identical to, that for public corporations and their shareholders.

Like other law firms employed in the trust sector and by government, provided details about the new trust tax without opinion on it.

Mr. Werklund said in a press release that, In a sea of confusion and uncertainty, CCS Income Trust is confident that it is on solid ground. With a history of delivering value to unitholders, a phenomenal growth record and the best third quarter in history, CCS is confident the government’s “Tax Fairness Plan” won’t be derailing its growth plans.

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Yves L. Fortin, an economist has written a paper that considers arguments that income trusts cause tax leakage. He concludes that there is no clearly articulated problem in terms of income trusts causing tax leakage based on information available to the public.  The Income Trusts and Tax Leakage Analysis by Yves L. Fortinthrough the web site of the Canadian Association of Income Funds.