RESEARCH ARTICLES
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The question is, how many more companies are going to turn themselves into trusts? ...there’s simply not enough appetite ...for unlimited trust conversions.
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This deferral of taxes is a very good planning technique to deal with the aging population. You tax the income when you need the tax revenue.
“The point investors should take away here is not that trusts have zero effect on federal government tax revenues, but rather that the problem may not be as severe as it’s sometimes billed.”
And furthermore, on the trust market at the time of policy uncertainty in 2006:
Bank of Canada Working Paper: Income Trusts: Understanding the Issues, by Michael R. King, Financial Markets Department, Bank of Canada Ottawa, Ontario, Canada K1A 0G9, a 2003 Working Paper was never finished as it was intened to explore issues related to income trusts and finanical markets policy.
The paper abstract: An income trust is an investment vehicle that distributes cash generated by a set of operating assets in a tax-efficient manner. The market capitalization of income trusts has grown rapidly over the past two years, reaching $45 billion at year-end 2002. The sharp rise of income trust valuations, the large supply of new issues, and the complexity of their legal structure have increased scrutiny of this asset class. Because retail investors are the principal owners of income trusts, the author explores whether the cash returns from income trusts are in line with the risks.”
Furthermore, “The structure and valuation of a typical income trust are outlined. The benefits of income trusts and the issues related to investment are elaborated, focusing on legal and regulatory issues, corporate governance, operational issues, and market issues.”
Some journalists have generalized about this document to emphasize risks of the income trust structure and market. Certainly, the document provided a useful point of reference for beginnign explorations—as a Working Paper—at the time of its publication.
However, reading the paper and talking to its author, it is not clear the extent to which the unfinished exploration has tainted federal policy makers’ views on the income trust market.