1172850961 http://www.itrustinstitute.org/insight/ RESEARCH ARTICLES en admin@itrustinstitute.org Copyright 2007 2007-03-02T13:56:01-05:00 http://www.itrustinstitute.org/site/trust_research_study_shows_trust_tax_problem_really_federal_provincial_conc/ http://www.itrustinstitute.org/site/trust_research_study_shows_trust_tax_problem_really_federal_provincial_conc/#When:12:56:01Z With the early 2007 study of income trusts by the Finance Committee, testimony detailed expert opinion to show that income trusts might be tax generators for the federal government, not the source of “tax leakage” at all.  Testimony also confirmed the thesis proposed by Leslie Hayman, Editor of TrustInvestor.com in 2005 during the hearings held by Ralph Goodale. There appeared to be a problem with tax on trusts in so far as the federal government was collecting money from individuals who owned these securities. But without there being a tax on the corporation, there was little way for the Provincial government to collect revenue from these productive companies. The loss of tax on income trusts, therefore, related to a relative shift of taxes from Provincial coffers to Federal coffers.  Regardless of whether tax revenues were really growing as a result of income trusts, it was the Provincial governments that had the most to lose. And it is only those provinces without a small resident population that had the most to lose because it was the individual who was taxed on earnings from income trusts. The public hearings in 2007 confirmed this very point. In particular, the public heard from P.E.I. Treasurer Mitchell Murphy. He testified that , “the province was upset when P.E.I.-based Aliant (owned by Bell Canada Enterprises) became an income trust. This meant, as an income trust, Aliant would no longer pay provincial income taxes, but would flow through its profits to income trust unitholders, most of whom were not living in P.E.I. and were, therefore, not paying P.E.I. provincial income taxes.” Diane Francis summarized his stance in the National Post on March 2’nd 2007, by writing that, “income trusts may generate more taxes than do corporations, but not to the provinces in which they are headquartered. In that sense, they represent a redistribution of the tax dollars from P.E.I., Alberta, Manitoba and others to Ontario and Quebec, where most of the income trust unitholders reside and pay taxes. Or to foreigners, who pay a 15% withholding tax to Ottawa only.” She goes on to quote Mr. Murphy who said, “This helps explain why talk about tax leakage is so confusing. Mr. Flaherty was addressing tax leakage to certain provincial treasurers, not to government coffers as a whole...This situation has had a severe, detrimental effect on smaller provinces in particular, as they have seen the corporate tax revenues from some of their largest corporate taxpayers dry up, while the personal provincial income tax receipts are being collected by the larger provinces.” Investors and citizens have heard it before, but Ms. Francis highlighted the issue again in a national newspaper. She wrote, “So instead of adjusting equalization payments or kicking back foreign withholding taxes to these provinces, Mr. Flaherty took an axe to a huge sector retroactively...This isn’t about helping a few million investors recoup their losses (now estimated at $22-billion) or respecting existing incomes trusts while stopping new ones...This is about respecting investors’ rights and election promises.” The Federal-Provincial concerns about tax are due consideration in general and seem to confuse the income trust tax discussion in particular. But there is little public confusion by people familiar with income trusts: The income trust issue is about trust and what it means to individuals and the country when that trust is broken. For many Canadians and foreign investors, it is also therefore about hope for remedy if not justice for bad or immoral behavior. It would appear that the Conservative leaders must be prepared to face the growing challenge in regaining confidence from Canadians if they are to win the next election. Policy, Taxation, Social Security 2007-03-02T12:56:01-05:00 http://www.itrustinstitute.org/site/trust_research_observations_for_closed_door_income_trust_study/ http://www.itrustinstitute.org/site/trust_research_observations_for_closed_door_income_trust_study/#When:00:42:00Z OPEN LETTER To Members and Clerk of the Finance Committee Thank you for helping to make the preliminary study of income trusts happen and allow for public participation.  Canadians appreciate the process as some small way to rebuild trust in policy-makers in a situation where it has been terribly broken by tax and equity policy that defied past promises.  Policy, Taxation, Social Security, Need for Participatory Decision Making, Need for Stable Regime: Confidence, Economic and Development, Market Regulation, Business Fundamentals, Profitability & Growth, Productivity, Ownership, Educational Requirement 2007-02-06T00:42:00-05:00 http://www.itrustinstitute.org/site/trust_research_director_compensation_study_shows_low_cost_approach_among_tr/ http://www.itrustinstitute.org/site/trust_research_director_compensation_study_shows_low_cost_approach_among_tr/#When:23:39:00Z The placement firm, Patrick O’Callaghan and Associates and Korn/Ferry International has published a study that shows that income trust directors are receiving low pay that directors on traditional corporate boards. The study says that income trust directors earn an average of $34,823 a year compared with $54,662 at comparable corporations.  That is 57% less for a trust director, despite the comparable role and responsibility when working for the trust and corporation. Business Fundamentals, Cash Management, Ownership, Governance & Strategy 2007-02-01T23:39:00-05:00 http://www.itrustinstitute.org/site/trust_research_trust_returns_of_cash_addess_demands_of_global_fund_managers/ http://www.itrustinstitute.org/site/trust_research_trust_returns_of_cash_addess_demands_of_global_fund_managers/#When:15:12:00Z Dow Jones reported that a survey of fund managers released by Merrill Lynch & Co. found that, “The proportion of fund managers wanting to see cash returned to shareholders reached a record high of 53% this month, up from 44% in December 2006.” Business Fundamentals, Cash Management, Frequent Returns, Ownership, Returns Relative to Risk 2007-01-19T15:12:00-05:00 http://www.itrustinstitute.org/site/trust_research_dividends_most_significant_component_in_returns_on_investmen/ http://www.itrustinstitute.org/site/trust_research_dividends_most_significant_component_in_returns_on_investmen/#When:02:59:00Z The Future for Investors was written by Jeremy Siegel who did a study of dividend-paying and other equities. He found that, adjusting for inflation and considering the period from 1871 through 2003, a full 97% of the total return to investors in U.S. stocks came from reinvesting dividends. Only 3 per cent resulted from capital gains. Business Fundamentals, Frequent Returns, Ownership, Returns Relative to Risk 2007-01-18T02:59:00-05:00 http://www.itrustinstitute.org/site/trust_research_pricewaterhouse_study_income_trusts_are_efficient_at_investi/ http://www.itrustinstitute.org/site/trust_research_pricewaterhouse_study_income_trusts_are_efficient_at_investi/#When:23:54:00Z 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.” Policy, Taxation, Economic and Development, Business Fundamentals, Profitability & Growth 2006-12-07T23:54:00-05:00 http://www.itrustinstitute.org/site/trust_research_bmo_nesbitt_burns_study_shows_trusts_provide_tax_gain_for_go/ http://www.itrustinstitute.org/site/trust_research_bmo_nesbitt_burns_study_shows_trusts_provide_tax_gain_for_go/#When:11:45:01Z 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”. Policy, Taxation 2006-12-07T11:45:01-05:00 http://www.itrustinstitute.org/site/leading_law_firm_working_in_structured_finance_and_trusts_provides_overview/ http://www.itrustinstitute.org/site/leading_law_firm_working_in_structured_finance_and_trusts_provides_overview/#When:20:44:01Z 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. Policy, Taxation, Business Fundamentals, Legal Structures 2006-11-30T20:44:01-05:00 http://www.itrustinstitute.org/site/trust_research_dave_werklund_president_and_chief_ccs_income_trust/ http://www.itrustinstitute.org/site/trust_research_dave_werklund_president_and_chief_ccs_income_trust/#When:13:48:00Z 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. Policy, Taxation, Business Fundamentals, Profitability & Growth, Cash Management 2006-11-30T13:48:00-05:00 http://www.itrustinstitute.org/site/trust_research_analysis_of_income_trusts_and_tax_leakage_is_there_a_problem/ http://www.itrustinstitute.org/site/trust_research_analysis_of_income_trusts_and_tax_leakage_is_there_a_problem/#When:22:23:01Z 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. Policy, Taxation 2006-11-29T22:23:01-05:00