The firm Blake, Cassels & Graydon, LLP issued a bulletin entitled ”Canadian Minister of Finance Announces a Proposed New Tax Regime for Income Trusts and Public Limited Partnerships - November 2006”.

They say, ”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. And then the specific details are provided without opinion from the Law firm.

QUOTE:

“The federal government acted too aggressively in its decision to tax income trusts and unnecessarily roiled valuations for investors...Markets and investors would have been better served by a more cautious approach.”

It wouldn’t have had as dramatic an impact on the market, and it probably would have cooled out the income trust marketplace . One could have stretched the tax over a number of years ... but by doing it overnight in one fell swoop, it’s had a very unfortunate and heavy impact on valuations.

FROM: Reuters
Report by Jonathan Spicer on market drop following trust tax announcement

The Association represents 200 registered investment dealers in Canada

QUOTE:

This arbitrary action is not very conducive to business. This is going to cost a bunch of people a lot of money...Most surprising was a lack of detail about the new rules from a Conservative government that has billed itself as pro-business.

FROM: Reuters News Agency
Report by Jeffrey Jones and Scott Haggett

QUOTE:

On news of proposed added taxes on income trusts: We’re incredibly disappointed they would do something like this without apparent consultation, and expect this will have an absolutely huge, huge impact on Canadian capital markets—not just the trusts.

Any stock that had any possible premium built in for a trust conversion will implode tomorrow as well.

“Without the tax structure in place, trusts may have to stop deploying cash to such fields and overall Canadian [oil and gas] production will start to wane”

FROM: Reuters.com
Report By Jeffrey Jones and Scott Haggett

QUOTE:

I think it’s absurd...We waited three years to income trust. They changed the rules three times. Finally the Tories came in and said they…do not intend to change the rules on income trusts. We income-trust 90 days ago and the first thing they do is change the rules on trusts.

This is the most bizarre, Third World policy I could imagine. It doesn’t even make sense to me — how can they keep changing the rules?

FROM: Comments to Reuters
Reported by Sean Silcoff of National Post