QUOTE:

A lot of seniors are being taken in on this because they are not getting the yields that they thought they were going to get...We want regulations to police the income trust area, to police it if people are losing their money.

“Tax leakages mean less federal money will be available for health care and social security...a federal regulator should be established to monitor trusts more closely.”

FROM: Tavia Grant and Roma Luciw
For the Globe & Mail
Report on an Ottawa Press Conference

Responses from the public consultation on trusts 2005: Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships).

The Department began posting public responses to this consultations initiative on Thursday March 16, 2006. Additional responses will be posted in alphabetical order as soon as they are processed. By the end of 2006, the Department had not yet completed the process as it worked through from letter “a” on to build an alphabetical list of responses.

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.