If Don Martin's wishful reportage is to be believed

I was intrigued to learn today, that according to Don Martin of the National Post that Jim Flaherty is deserving of honorable mention for Best Cabinet Minister of the year, solely on the basis that Flaherty “seems to have finally put the income trust flip-flop behind him.”

The word “seems” suggests that Don Martin basis his proclamation on some evidence. If that’s the case, I am curious to know at what point in time this “behind him” event occurred, and what exactly was the watershed event that marked the point where the issue was put to rest. For example was the income trust issue resolved to everyone’s satisfaction at the point in time where Jim Flaherty bravely proclaimed that all the foreign takeovers induced by this policy was “not my fault”. Or did absolution occur when the Privacy Commissioner in the Department of Finance demanded that the 18 pages of blacked out evidence of tax leakage be returned? Perhaps the whole matter was put behind Flaherty when he promoted Mark Carney to become Governor of the Bank of Canada, against the wishes of the BoC Board, in order to provide Mark Carney with a form of immunity, since as Bank of Canada Governor we are told that Mark Carney can no longer comment on government legislation? If that’s the case, someone should have told his predecessor, who allowed himself and his office to be politicized on this matter at Flaherty’s behest.

Mr. Martin. I am curious to know at exactly what point and what precise event caused this issue to be “finally behind” and Flahery absolved and exonerated, since:

• It most certainly isn’t “behind” the 2.5 million income trusts investors, who continue to have sustained a $35 billion loss in their hard earned retirement savings.
• It most certainly isn’t “behind” the 300 US income trust investors, who have joined inn the Gottlieb lawsuit against the Canadian Government under the “detrimental reliance” provisions of NAFTA
• It most certainly isn’t “behind” the Green Party of Canada, who have called for a public inquiry into alleged tax leakage.
• It most certainly isn’t “behind” the Liberal Party of Canada, who put the following motion before the Finance Committee that reconvenes on January 28, 2008:
  

"That this committee as soon as possible launch an inquiry into the unproven allegation by the Finance Minister that income trusts result in a loss of tax revenue to Ottawa, in light of reports that 70% of all recent trust purchasers are tax-exempt, while individual Canadian investors lost tens of billions of dollars, and therefore pay less tax, as a result of the government trust decision."

None of this sounds very “behind” to my simple way of thinking. Please advise me of the basis for your thesis that this issue is now “behind” the Stephen Harper government as they will likely face the electorate in the coming year at which point they will face the wrath of betrayed Canadians. Or is it simply a matter of wishful reportage on your part, and you are the one who is behind the “behind”?

I would submit this issue is as alive as it has ever been, since the unintended negative consequences that many had been predicting since the very outset have now come home to roost in all their combinatorial glory, as evidenced by over $65 billion in trust tax related takeovers and the LOSS of taxes fro a policy whose very intent was the obverse outcome. In case Don Martin didn’t realize it, the largest takeout of them all, namely BCE is expected to be closing sometime early in the new year, at which point it will become abundantly obvious to all those whose heads aren’t firmly implanted in the sands of denial, that this takeover alone will cost Ottawa $793 million in forgone taxes ANNUALLY relative to had BCE been allowed to convert into a value maximizing, tax collection maximizing income trust to the betterment of all, save and except the management of BCE, who have learned are still establishing tax policy for Canada, while simultaneously maximizing their personal wealth. If Don martin is to be believed, all this is now officially behind us. After all, he said so. And in a manner totally consistent with the trust tax itself, namely, the complete absence of proof and with an abundance of evidence to the contrary

Toronto Star Editorial Board implicitly supports public inquiry into tax leakage.

This principled line of reasoning by the Toronto Star into the need for the Public Inquiry of Schreiber/Mulroney applies as equally to the need for a Public Inquiry into tax leakage as called for by the Green Party and the Liberal Party........only the stakes are higher.....Canada is bleeding $1.4 billion in ANNUAL lost taxes to date from a policy that been around for a year, soon to grow to $7.5 billion a year. And to the extent anyone even cares, Canadians saving for retirement have lost a mere $35 billion.....with a B.....as in Brian. The only difference is these Canadians were more than happy to pay their taxes to the government on their retirement income.....only to have the government ignore its existence when it came time for policy formulation.

“There are compelling reasons for such a probe, including the importance and value of the truth and integrity to our democratic institutions. Effective democracy demands that the public interest must always take precedence over the private or personal interests of those who enjoy the power and privilege of governing.

Canadians accept all kinds of costly safeguards to ensure the system works as effectively as it can. The auditor general, for example, provides an effective check on how our tax dollars are spent. The ethics commissioner is the first line of defence against abuse of the public trust. And public inquiries are needed at times to consider whether or not politicians and bureaucrats have abused their power.” Toronto Star Dec 22, 2007

Good of the Toronto Star to mention the Auditor General, since it is the Auditor General whose mantra is “Parliamentarians need objective fact based information on how well the government raises its funds (taxes)”

How objective and fact based do you suppose 18 pages of blacked out documents are? In the absence of facts to support its veracity, where is the accountability for the income trust tax? The transparency? The Toronto Star Editorial? The MSM?

Mulroney inquiry is worth the price - The Toronto Star

Harper Valdez...Strengthening Canada's Social Security for Pensioners and Seniors?

CLICK FOR FULL SIZE IMAGE

Related:
On the good ship Harper Valdez
Treating the symptoms. Two Jims in a Jam!
Conservatives signal foreign takeovers OK until next year

Royal Bank foresaw what Deloitte has confirmed........creating tax leakage where there otherwise wasn't tax leakage

Who's fairy tale do you want to believe? Jim Flaherty’s or those wild and crazy people at Royal Bank and Deloitte?

Earlier this month Deloitte issued a study entitled “Income trust buyouts: Lots of activity, little tax revenue”

Among other things Deloitte's study confirmed Income Trust buyers are largely tax-exempt:

Buyers in the 40 announced deals were equally split between strategic and private equity, as well as between domestic and foreign. But in terms of tax revenue for the Canadian government, the news was not so balanced: 70% of the purchasers are tax exempt pension/private equity funds or foreign buyers who pay little if any tax in this country.

What structures were buyers using to acquire trusts? In 22 of the 40 transactions, trust units were acquired; in the other 18, the purchaser acquired shares of subsidiary corporations, trusts or partnerships. The method of acquisition has significant implications for the buyer, trustees and unitholders. The entity left “holding the bag” has to bear the cost and risk associated with the wind-up of the engineered trust. A caveat for future purchasers: all parties should consider the implications of a proposed structure when assessing the value and risk of an offer for a trust.

Based on our involvement with over 20 income trust buyout transactions in the past year we believe that the buyout momentum will continue. The current M&A slowdown is primarily driven by “mega” transactions exceeding $1 billion in size. The income trust market, particularly the business trust segment, is comprised of medium-sized companies that are ideal for financial and strategic buyers. Clearly, volatility in the income trust sector is far from over.

This sounds familiar. In April 2007 RBC Capital Markets issued “Aesop’s Warning Ignored: Much wants more yet oft loses all” forecasting the following:

Proposed Trust Tax Akin to Killing the Golden Goose - Believing they are not collecting sufficient taxes fast enough, the proposed trust tax is a living example of Aesop's Fable, "The Golden Goose." By effectively killing the Trusts, less taxes will be collected, not more.

A Glimpse Into the Future - Look at the announced trust acquisitions; it is clear that less taxes will be collected, not more. The acquisitors are not your friendly neighborhood taxpayer, they are sharp investors looking to maximize cash flows from their investments. And who can blame them, it is their right to plan ahead in order to minimize their income tax burden.

Flawed Analysis - Forget prying the secret analysis free for public scrutiny; its underlying logic is likely flawed. Why? You can draw generalities from analyzing many specifics, but you cannot draw specifics from analyzing many generalities. Anecdotal (specific) evidence is already available on the announced trust takeovers. Taxes collected from the acquired trusts will decline, this is now coming into focus for all to see. How could the trusts have been a source of tax leakage if we collect less tax from them when reverted back to corporate form?

Greed, One of the Seven Deadly Sins - It was greed that killed the Golden Goose in Aesop's famous fable. Trusts, which lay golden eggs (cash distributions) for so many taxpaying Canadians, appear to be heading for similar fate for a similar reason.

It is time for a reality check.

CBC? Income Trusts? Scandal? Lobbyists?

Don Newman¹s motto is "the spin stops here", and for good reason.

Facts are facts. Where are Flaherty¹s "facts"? Who were those unregistered
lobbyists? Gwyn Morgan? Paul Desmarais Jr? Time for a public inquiry.


Related:
Conservative spin check: What is Gwyn Morgan talking about?
In Gwyn we trust? A fairy tale from a Conservative apologist.
Stephen Harper leveled the playing field......in Paul Desmarais Jr's/Power Financial's favour

Flaherty's Mini Budget: What became of leveling the playing field?

John McCallum asks a question of the Harper government

Q-1492 — November 29, 2007 — Mr. McCallum (Markham—Unionville) — With regard to the tax on income trusts announced on 31 October 2006, using the same model that was used to calculate the government’s estimates of tax leakage described by the Minister of Finance during his appearance at the Standing Committee on Finance on January 30, 2007, what would the government’s estimates of tax leakage have been if the corporate tax rate had been 15% rather than 21% as they were in 2007?

---

Trusts Redux: Tax Policy Suitable for Halloween

As an economist I welcome Minister Flaherty’s October 30 announced intention to boost Canadian productivity and prosperity by reducing the general federal corporate income tax rate to 15 per cent by 2012. The measure should be embraced by all: It will position Canada favorably in the global economy for decades to come. But while I laud the strategic direction on corporate taxes, I continue to question the government’s consistency on tax policy in general.

A year ago today the Minister announced in his Tax Fairness Plan his intention to “restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations,” to eliminate tax leakage and to remove distortions in investment decisions. To paraphrase the Department of Finance’s analysis, the avoidance of corporate taxes from entities after conversion to an income trust is not totally offset by the taxes paid on income trust distributions from individual unit-holders; therefore tax leakage. The Minister estimated that annual tax leakage was in the order of $500 million and stated that something had to be done “to restore balance and fairness in the tax system”. The Minister’s solution to create “tax fairness” and eliminate tax leakage was to implement a 31.5% Distribution Tax on trusts in 2011 and to not allow any new conversions to the income trust form. The market response to the “Tax Fairness Plan” announcement was very negative.

Having worked for the income trust industry and with the Department of Finance on determining the appropriate methodologies for tax leakage, I presented evidence on the tax leakage issue to the Parliamentary Standing Committee studying the issue. To be precise, I raised several concerns with the Department of Finance approach – all of which went to a “sharp over-statement” of tax leakage. The major flaw in the Department of Finance analysis was that it did not take a lifecycle view of the tax leakage issue but rather focused on a 2006 “test year”. By failing to account for the reality that corporate tax rates were legislated to be reduced to 19 percent by 2011, the Department took a short-sighted and punitive approach to the issue. Despite the debate and a dissenting Committee Report “Taxing Income Trusts: Reconcilable or Irreconcilable Differences”, the income trust provisions of the Tax Fairness Plan remain in place.

It is regrettable that the October 30 announcement did not occur a year ago. It would have all but eliminated the perceived tax leakage issue without the punitive distribution tax on income trusts. In fact, the Department of Finance’s own Tax Leakage Model would have given an estimate of merely $80 million in tax leakage when accounting for yesterday’s corporate tax cuts instead of the $500 million stated by the Minister at the time. The Department’s own analysis would not have supported a tax on income trust distributions. If the October 30 announcement had been made last Halloween, the billions lost by investors would not have occurred and the playing field would have been leveled by 2011 – all this according to Department of Finance methods of analysis. These losses cannot be recovered and one has to question the path that led us to this point and Finance’s tax policy strategy.

I believe that even the $80 million estimate sharply overstates the leakage. This aside, yesterday’s corporate tax cuts would now allow the abolishment of the income trust distribution tax all together without incurring federal tax leakage – this, again, according to the Department of Finance’s own model.

Dennis Bruce is Vice President with HDR Decision Economics and has studied the income trust tax leakage issue since 2003. He twice testified before the House of Commons Finance Committee on the question Income Trust tax leakage.

Dennis Bruce
Vice President
HDR | HLB Decision Economics Inc.
1525 Carling Avenue, Suite 500
Ottawa, Ontario
Tel: 613-234-0080
Cell: 709-632-1708

HDR - ONE COMPANY | Many Solutions ™

John McCallum challenges Flaherty with Deloitte report and Government Cover-up

Auditor General: “Parliamentarians need objective fact based information on how well the government raises its funds (taxes)”

Stephen Harper and Jim Flaherty may not believe that, but John McCallum and the Liberal Party clearly do, as witnessed by this question in Parliament on December, 13, 2007:



Deloitte's report reveals the following failures of the Conservative policy on Income Trusts:

Takeover Buyers are largely tax-exempt

Buyers in the 40 announced deals were equally split between strategic and private equity, as well as between domestic and foreign. But in terms of tax revenue for the Canadian government, the news was not so balanced: 70% of the purchasers are tax exempt pension/private equity funds or foreign buyers who pay little if any tax in this country.

What structures were buyers using to acquire trusts? In 22 of the 40 transactions, trust units were acquired; in the other 18, the purchaser acquired shares of subsidiary corporations, trusts or partnerships. The method of acquisition has significant implications for the buyer, trustees and unitholders. The entity left “holding the bag” has to bear the cost and risk associated with the wind-up of the engineered trust. A caveat for future purchasers: all parties should consider the implications of a proposed structure when assessing the value and risk of an offer for a trust.

Based on our involvement with over 20 income trust buyout transactions in the past year we believe that the buyout momentum will continue. The current M&A slowdown is primarily driven by “mega” transactions exceeding $1 billion in size. The income trust market, particularly the business trust segment, is comprised of medium-sized companies that are ideal for financial and strategic buyers. Clearly, volatility in the income trust sector is far from over.

Read the complete report here. Income trust buyouts: Lots of activity, little tax revenue

And contrary to the fantasy and misdirection of Jim Flaherty, the Liberals have been consistent in their position for some time as recently explained by John McCallum on October 31st, 2006:



See also: The Liberal Plan - Feb 16, 2007

Meanwhile the Green Party has called for a public inquiry into the government’s unproven allegation of income trusts. Likewise the Liberals:

Green Party calls for inquiry into the alleged tax leakage of income trusts

Dr. Carney and Mr. Hide

Harper promises 'new era of accountability'
February 1, 2006
CBC News

Incoming prime minister Stephen Harper says his government's first act upon assuming power will be to table a federal accountability bill. No immediate changes to civil service, Harper says

However, Harper said his government would not move immediately to make major changes to the public service that were recommended in Gomery's second report.

Harper said they had "merit" but said his government would have enough to do elsewhere in the first few months of its transition into power.

---

Mark Carney is an example of a completely unaccountable top ranking bureaucrat from the Department of Finance who thinks that a solemn election promise that was reversed at the cost of $35 billion in Canadian’s hard earned life savings can be simply justified on the strength of 18 pages of blacked out documents, and nothing else.

As Diane Francis, Editor at Large of the Financial Post has written; “prove the case or drop the tax”

You be the judge of whether Bank of Governor elect Mark Carney, meets your test of Stephen Harper’s promise of new Accountable and Transparent government.




Related:
Pump it up
The NDP are needlessly setting themselves up
There's a sucker born every minute
Harper, Carney, Flaherty income trust mistake: Deloitte - Diane Francis
Federal Conservatives' So-Called "Federal Accountability Act" and Related Decisions Earn a "D" Grade - Democracy Watch

The true compensatory loss sustained by trust investors

By Brent Fullard

There was a somewhat misleading article that appeared in today’s National Post entitled “Trusts still in black“ about the losses sustained by income trust investors as a result of the Harper Government actions of Halloween 2006. This article looked at the matter from the standpoint of a portfolio manager’s annual performance and not from the standpoint of compensatory losses in a court of law, which is the relevant test to be applied.

The question of what losses were sustained by income trust investors requires the application of Decision Theory, as taught in science courses, and as would be applied in a court of law in terms of seeking compensation necessary to make the plaintive “whole”.

• The value of trusts has fallen from 164.86 to 141.11 at the close yesterday for a loss of 14.4%
• Meanwhile, the value of the TSX has gone from 12,344 to 13,940 at the close yesterday for a gain of 12.9%
• Therefore, the actual loss in the value of trusts is $28.8 billion
• Whereas the relative loss in the value of trusts is $54.7 billion
  

Including the distributions paid on income trusts is irrelevant to this calculation, since Decision Theory 101 instructs that any exercise which seeks to evaluate the impact of particular event (in this case the Harper government’s reversal of its election promise to never raid senior’s nest eggs) has to identify and isolate those outcomes and only those outcomes that differ between the “Raid Senior’s Nest Egg Scenario” and the “Do Nothing Scenario” during the past 13 months. This is how a court of law would look at it. For example if an accident caused my house to burn down, the accused couldn’t deduct from my losses the fact that my car in the garage was spared from damage. Think of distributions as the car in the garage.

Under both scenarios of Raid Seniors Nest Eggs versus Do Nothing to Harm Seniors Nest Eggs, the distributions would have been paid and therefore this aspect of the analysis is not to be considered. The distributions will only differ as between the two scenarios come 2011, when they are taxed at 31.5% under the Raid Scenario and not taxed under the Do Not Raid scenario, however we are only seeking to evaluate the losses over the past 13 months

Therefore, What did differ, as between these two scenarios is the value of Seniors Nest Eggs in accordance with the numbers cited above. Income trusts investors whose nest eggs were raided lost $28.8 billion if there plan was to have liquidated their investments for cash, and $54.7 billion if their intention was to remain invested in the market. This is the damage sustained by invetsors that would be sought in a court of law under these circumstances: $54.7 billion.

Keep in mind, apart from the promise “not to tax income trusts” there was also the Harper election promise/lie contained on page 43 of their campaign platform that read: “timely compensation will be paid to all persons who are deprived of personal or private property as a result of any federal government initiative, policy, process, regulation, or legislation.”

The NDP are basing their income trust tax policy on someone described by the courts as "frivolous and vexatious"

By Brent Fullard

The NDP are clearly lacking in research capabilities of their own, That was proved abundantly obvious when Judy Wasylycia-Leis made a claim in Parliament on May 10, 2007 that CAITI had had donated $282,000 since 1993 to the Liberal party and $53,700 to Liberal leadership contenders in 2006. Not only does CAITI have a strict policy against making any political donations, direct or directly, at the time of this claim, CAITI had only existed for less than 4 months. That didn’t stop former used car salesman and Conservative MP Dean Del Mastro from parroting the same claims five minutes later.

Now we know how false claims like tax leakage get started and how others are quick to blindly jump on the band wagon. Emphasis on the word “blind”. Much like the press in Canada.

Another example of the NDP’s ineptitude at research occurred at the NDP gathering I attended on the subject of the SPP (Security and Prosperity Partnership) on November 24. The NDP’s depth of knowledge on this subject by their “in house expert on the SPP, Peter Julian, could easily be superseded by spending 2 hours of googling SPP and listening to Lou Dobbs on CNN . Peter Julian admitted that the NDP are still in the process of putting the SPP puzzle together and would welcome receiving information from people in the audience.

This form of trolling for information obviously makes the NDP susceptible to people like Diane Urquhart, the self professed “independent analyst”, as they are happy to “out source” their research on virtually any fact based topic. Not sure what “independent analyst” means, as Diane states she has no clients. If that’s the case, then she is only representing herself as an individual investor.

I do know, however that the NDP have bought Diane’s arguments about income trusts, hook, line and sinker. Diane also seems to get a lot of press lineage for someone who has a questionable credentials. The NDP are so fond of Diane Urquhart, that they saw to it that she testified no less than three times before the Finance Committee on the matter of income trusts. I am only aware of one other person who testified more than once, and that was Dennis Bruce who testified twice. He however, as Vice President with HLB Decision Economics, was the only person who worked with the Department of Finance to create with them the tax leakage model and published the definitive study that lays to shame the false allegations of tax leakage entitled Tax Revenue Implications of Income Trusts.

Meanwhile the NDP are in bed with the “frivolous and vexatious Diane Urquhart”. At least according to the courts. So too it seems are the Conservatives

Here was the glowing introduction afforded Diane Urquhart by Mr. Dean Del Mastro (Peterborough, CPC):

"Mrs. Urquhart, I'm just reviewing your resumé a little bit. You've got quite of bit of experience in relation to investment and you are certainly a professional witness before this committee. I appreciate your being here.”

It is clear from Diane’s resume that she has engaged in resume inflation and resume puffery. Despite what her resume says, at no point was Diane Urquhart the Managing Director of Equities Research and Institutional Equities at Burns Fry Limited, since during Diane’s time at Burns Fry, which ended in 2004, the title of Managing Director did not exist at the firm. No one had such a title. Nor did Diane “Co-lead the daily operations of 175 research, sales and trading personnel” at Burns Fry. Such a construct did not exist, as Diane had no responsibility for the institutional Sales and Trading personnel at Burns Fry. I can assure you, since I also worked at Burns Fry from 1991 to 2002, that if she did, they all would have quit. The individual responsible for that function was Barry Cooper. Diane reported to him as the manager of the Research Department. I have confirmed this with other people at Burns Fry who were there at the time and who were very aware of what Diane did and did not do. Diane obviously harbored desires to be the Head of Research, Sales and Trading and launched at the time what can only be best described as a “coup” against Barry Cooper that failed miserably. She left shortly thereafter.

Diane also describes on her resume that after leaving Scotia Capital Markets in 1998 that she was for the period from 1999 to 2001 a Venture capital investor in iTCANADA.com, an internet services consolidator that was sold to Technovision Systems Inc. in December 2000.

Diane however fails to describe how she went on to lose about all of her $1.19 million investment in Technovision that she received in exchange for her 25% ownership of ITCANADA.com and sought to recover her failed investment in actions she brought in the BC and Ontario courts and involving the securities commissions in BC and Ontario. The details are available at the Ontario Securities Commission

The details of these legal proceedings are not very flattering of Diane Urquhart as an investor or of her business acumen. Why the NDP are relying on her views on income trust only goes to discredit the NDP’s own credibility.

The Ontario Court ruled:

• “We find that this section 104 application on behalf of the Applicants is out of time and frivolous and vexatious, and in the words of the Honourable Justice Pitt, "this is precisely the kind of proceeding that motions judges are obliged to stay or dismiss on grounds of res judicata, issue estoppel, abuse of process and on the ground that they are frivolous and vexatious."

• This is a private dispute and should be resolved in the civil courts. Failure to succeed in the civil court should not be the basis for an application to the Commission to change a private dispute into a matter of public interest.

• The application of Urquhart is therefore dismissed.”

Related:
The NDP are needlessly setting themselves up
Tax Revenue Implications of Income Trusts

An autopsy of the Telus - BCE deal. How the Harper government favoured Private Equity and turned it's back on Canadian investors.

"I would argue we [Telus] would have generated more taxes for the government as a Trust than what we would do as a public entity" Darren Entwistle November 20, 2007

Entwistle describes the advantages for Canadian taxpayers and investors of converting to an Income Trust. This option was no longer available after the Conservative's surprise October 31, 2006 decision to dramatically increase taxes on Canadian Business Trusts.

Also, Entwistle looks at the circumstances which lead to the unsuccessful attempt by Telus to buy BCE and the obstacles put in place by the Harper Conservative government.



Related:
The sky is falling... the tax threat of BCE and Telus converting

Should Jack Mintz testify at Ethics Committee hearings?

Who knows how much of a crook Brian Mulroney will turn out to actually be. I am vastly more interested in the blatantly fraudulent ways of our current Prime Minister in doing the bidding of Corporate Canada’s Controlling Elite (CCCE) on the matter of income trusts.

It’s time for an Ethics Committee Hearing on Alleged Tax Leakage.

Here would be a good starting point. Namely Jack Mintz comments on validity of Stephen Harper’s methodology for alleged tax leakage;

“I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero”

All of which begs the question, what is the correct tax leakage? Here is an Op Ed written by Dennis Bruce that neither the Globe and Mail nor the National Post saw fit to publish. What are they afraid of apart from the truth? The very fact that the press are suppressing the truth behind this policy, is what profoundly requires a Hearing by the Standing Committee on Access to Information, Privacy and Ethics. The CBC already has their hands full uncovering these scandals the press ate happy to ignore.

---

Trusts Redux: Tax Policy Suitable for Halloween
October 31, 2007

As an economist I welcome Minister Flaherty’s October 30 announced intention to boost Canadian productivity and prosperity by reducing the general federal corporate income tax rate to 15 per cent by 2012. The measure should be embraced by all: It will position Canada favorably in the global economy for decades to come. But while I laud the strategic direction on corporate taxes, I continue to question the government’s consistency on tax policy in general.

A year ago today the Minister announced in his Tax Fairness Plan his intention to “restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations,” to eliminate tax leakage and to remove distortions in investment decisions. To paraphrase the Department of Finance’s analysis, the avoidance of corporate taxes from entities after conversion to an income trust is not totally offset by the taxes paid on income trust distributions from individual unit-holders; therefore tax leakage. The Minister estimated that annual tax leakage was in the order of $500 million and stated that something had to be done “to restore balance and fairness in the tax system”. The Minister’s solution to create “tax fairness” and eliminate tax leakage was to implement a 31.5% Distribution Tax on trusts in 2011 and to not allow any new conversions to the income trust form. The market response to the “Tax Fairness Plan” announcement was very negative.

Having worked for the income trust industry and with the Department of Finance on determining the appropriate methodologies for tax leakage, I presented evidence on the tax leakage issue to the Parliamentary Standing Committee studying the issue. To be precise, I raised several concerns with the Department of Finance approach – all of which went to a “sharp over-statement” of tax leakage. The major flaw in the Department of Finance analysis was that it did not take a lifecycle view of the tax leakage issue but rather focused on a 2006 “test year”. By failing to account for the reality that corporate tax rates were legislated to be reduced to 19 percent by 2011, the Department took a short-sighted and punitive approach to the issue. Despite the debate and a dissenting Committee Report “Taxing Income Trusts: Reconcilable or Irreconcilable Differences”, the income trust provisions of the Tax Fairness Plan remain in place.

It is regrettable that the October 30 announcement did not occur a year ago. It would have all but eliminated the perceived tax leakage issue without the punitive distribution tax on income trusts. In fact, the Department of Finance’s own Tax Leakage Model would have given an estimate of merely $80 million in tax leakage when accounting for yesterday’s corporate tax cuts instead of the $500 million stated by the Minister at the time. The Department’s own analysis would not have supported a tax on income trust distributions. If the October 30 announcement had been made last Halloween, the billions lost by investors would not have occurred and the playing field would have been leveled by 2011 – all this according to Department of Finance methods of analysis. These losses cannot be recovered and one has to question the path that led us to this point and Finance’s tax policy strategy.

I believe that even the $80 million estimate sharply overstates the leakage. This aside, yesterday’s corporate tax cuts would now allow the abolishment of the income trust distribution tax all together without incurring federal tax leakage – this, again, according to the Department of Finance’s own model.

Dennis Bruce is Vice President with HDR Decision Economics and has studied the income trust tax leakage issue since 2003. He twice testified before the House of Commons Finance Committee on the question Income Trust tax leakage.

Dennis Bruce
Vice President
HDR | HLB Decision Economics Inc.
1525 Carling Avenue, Suite 500
Ottawa, Ontario
Tel: 613-234-0080 Cell: 709-632-1708

HDR - ONE COMPANY | Many Solutions ™

The NDP are needlessly setting themselves up

By Brent Fullard

This evening [November 24] I attended an NDP public gathering in Hamilton hosted by four NDP MPs, which constitutes about 13% of the NDP’s caucus. The subject matter of the meeting was the Security and Prosperity Partnership. The NDP has been holding a number of similar meetings across the country on this matter and I learned they are planning to roll out their position on the SPP in a more prominent way in two weeks time. The NDP are to be applauded for giving the SPP greater visibility, since the self described modus operandi of the SPP is “evolution by stealth” and the supposedly innocuous jelly bean agenda, as Stephen Harper prefers to call it.

NDP Peter Julian described for the audience of 120 or so people the top ten things that Canadians need to know about the SPP. I only took note of the seven items described by Peter Julian that best serve to highlight the inherent contradiction between the NDP being against the SPP and being for the income trust tax:

(1) Policy is the product of the CCCE
(2) Absence of Public Consultation
(3) It is secret
(4) Blacked out documents released under Access to Information re SPP
(5) Censorship by government about SPP s greatest on issues relating to energy resource issues
(6) “Quality of life issues” are involved
(7) Energy sovereignty being threatened and compromised

Virtually every point that Peter Julian made in his presentation on the negative aspects of the SPP afforded me with a segue into the topic of income trusts. I waited to hear the questions that others in the room where asking first before asking my question. The questions were being asked in groups of five or so questions and then answered by Peter Julian. I asked my question immediately following a question from a gentleman who was pointing out the “faith based” nature of the Harper government and a question from another gentleman about the recent rash of foreign takeovers. I started off by making the point that a large portion of the takeovers, $65 billion in the last 12 months to be precise, can be explained by the faith based tax policies of the Conservative government that are, in fact, being supported by the NDP. I also pointed out that the NDP themselves are practicing their own brand of faith based policies, as bad as those of the Conservatives, because the NDP are writing letters to their constituents that read:

“I am confident that government estimates of future tax leakage are solid”

I then held up the 18 pages of blacked out documents provided under the Access to Information Act and asked the four NDP MPs in attendance where they derived their confidence from, if not simply blind faith. Blind faith on a matter that can be factually determined..

Peter Julian attempted to respond to my question in purely partisan terms, describing how this or that was either the fault of either the Liberal or the Conservatives. I told him he was wrong and that the blame he is trying to lay at the Liberals feet had nothing to do with the Liberals and everything to do with the alleged insider trading activity undertaken by Serge Nadeau, Director General of Tax Policy in the Department of Finance. I then pointed out that the Liberals are to be commended for doing what the NDP are condemning the Conservatives for not doing in the case of the SPP , namely Public Consultation. I pointed out to Peter Julian that had it not been for Ralph Goodale’s public consultation round in 2005, we would never have known that Mark Carney and Company in Finance were leaving out the 38% of taxes that are paid by average Canadians who hold their income trusts in RRSPs.

I indicated to the audience that the $65 billion in takeovers will be costing all Canadians, since it is all tax paying Canadians who will pay for the loss of $2 billion a year in taxes, a figure that will soon rise to $7.5 billion a year. On the point being made about the SPP and sovereignty I pointed out that the NDPs support of this income trust tax has left the 20% of Canada’s oil and gas production that is held in trusts and the 80% of Alberta’s energy infrastructure held in trust s highly vulnerable to foreign takeovers Witness Abu Dhabi’s purchase of Prime West for $5 billion. This, Peter Julian shamelessly or perhaps naively attempted to blame the Conservatives for.

All of this to make one simple point. This was a meeting that took place in Hamilton with a roomful of people who were predominantly Labour, as evidenced by the fact that everyone referred to one another as “brother”. During the evening about 25 questions were asked. Two received applause, one of which was my question. Many in attendance came up to me afterwards to learn more. Therefore the issue of income trusts is not going away and even die hard NDP supporters are receptive to others like myself when we raise completely valid questions such as “where is the NDP’s proof of tax leakage?”

As such, the NDP is setting itself up if it goes into the next election without answers to these questions, as they can be assured that they will be facing these most embarrassing questions in most every all candidates meeting that are held in ridings across the country. The NDP need not wear this egg on their face, since they need only point to the source of the false tax leakage information: Mark Carney and his compliant cohorts in the department of Finance. No reason why the NDP can't look smart by exposing the fraud taking place in the Department of Finance on behalf of the CCCE. Failure on the part of the NDP to do so will prove politically costly. Over to you Thomas Mulcair. You are operating with a blank slate. No need to feel bound by the superficial understanding of this issue that was brought to bear by former NDP Finance Critic Judy Wasylycia-Leis. Better to embarrass her than to embarrass yourself and your entire party in the process. In fact, no one needs to be embarrassed as the source of the misleading information insn’t Judy Wasylycia-Leis per se. But rather Mark Carney and his false methodology behind alleged ax leakage. Meanwhile, The 2.5 million income trust investors will prove a formidable challenge to your party’s ambitions. Keep in mind, there only were 2.5 million Canadians who voted NDP in the last election which was the NDPs best showing ever

PS: I gave Peter Julian his own set of 18 pages of blacked out documents and challenged him to come back to me with the NDPs proof of tax leakage. Before doing so he might want to read the attached report entitled “Tax Revenue Implications of Income Trusts" which showed no tax leakage, and that was before Harper reduced corporate tax rates from 22% to 15%, the effect of which Dennis Bruce of HLB Decision Economics has determined has now made income trusts responsible for $200 million in NEGATIVE tax leakage per annum

CRA Form T1032 codifies Harper's two tiered pension system

Lest you think terms "tax fairness" or "leveling the playing field" are lofty concepts that Stephen Harper actually believes in, as opposed to arbitrary and whimsical concepts that he trots out when it serves his purposes, you need to take a look at the CRA Form 1032 issued in October 2007 on the matter of income splitting for seniors. Here are the words on Form T1032 (see attached) that exclude the 75% of Canadians who do not have pensions, unlike MPs, Senators and Civil Servants:

"Exclude from the amount at line A of this form any RRIF, RRSP or other annuity payments received by your spouse or common-law partner (other than amounts received due to the death of his or her spouse or common-law partner). (1) "

Form 1032 is the form used for the 14% of Seniors who will benefit from income splitting.

Income splitting has a cash value of up to $12,000 per year in tax savings. There are however, two prerequisites to enjoy this massive tax benefit. You have to have a spouse or common law partner, and you need to have pension income. This automatically excludes 75% of Canadians. RRSP and RRIF income is explicitly excluded.

How can this measure possibly be contained in a piece of legislation entitled The Tax Fairness Plan?

This income splitting measure was held by the CONservatives to have been a form of mitigation to the income trust tax. How completely absurd, since the income trust tax is specifically targeted at the 75% of Canadians who don't have pensions, whereas the PREREQUISITE for income splitting is that an individual have pension income. RRSP/RRIF income is explicitly excluded.

This is just another example of how Stephen Harper is creating a two tiered pensions system in Canada. These are four main measures to bring Harper's grossly discriminatory two tiered pension system into effect:

(1) Income splitting only applies to 25% of Canadians with pension income (only half of whom have an eligible spouse), excludes the 75% without pension income. Measure benefits all MPs, Senators and Civil Servants.

(2) Pension plans can own income trusts in private form, free of the 31.5% income trust tax. RRSPs are double taxed.

(3) Pension plans are free of growth restrictions.

(4) Alleged tax leakage, is permissible if incomes trust are held by a pension plan.

The pension plans are laughing all the way to the bank. No doubt they were consulted on this beforehand by the Harper government. Otherwise, how could pension plans like Teachers have come out with statements like this on November 1, 2006:

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Teachers' response to new federal income trust policy
November 1, 2006

The Ontario Teachers’ Pension Plan has advocated for a taxation policy on income trusts that does not discriminate against pension funds, and we are pleased to see that this is the case with the government’s announcement yesterday (October 31, 2006).

The reality is that, in a protracted period of low interest rates, it is important to find alternate investments with yields that help make up the difference. Income trusts have allowed us to do that in recent years. The challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them. The four-year implementation period for this new policy will enable us to gradually make any necessary adjustments to our portfolio.

There is good news for pensioners and other seniors over age 65 in this new policy, which will help take the sting out of the new tax policy on income trusts for them: the age exemption tax credit will be increased by $1,000 and income splitting will be permitted.

Contact:

Deborah Allan
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
(416) 730-5347
deborah_allan@otpp.com

Western Investors protest Stephen Harper's attack on Alberta's Royalty Trusts

Western Canadian Investor Bruce Benson talked to BNN after-hours on the one year anniversary of the surprise announcement to tax Income Trusts at source. The protest occurred at Stephen Harper's constituency office in Calgary, Alberta.

Every Canadian, westerners and easterners alike, will pay for Stephen Harper’s betrayal:

• The Canada Pension Plan has lost $168 million to date.
  
• The take out of the trust sector by foreign private equity and government sponsored pension plans will mean the loss of $7.5 billion EACH year in lost taxes to Ottawa

CBC


CTV Calgary


BNN After Hours

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Related:

TSX vs. Royalty Trust Energy Index






Investors Protest On 1-Year Anniversary Of Income Trust Announcement

CALGARY/AM770CHQR - Angry investors gathered outside the Prime Minister's constituency office in southwest Calgary to speak out about the Harper government's plan to tax income trusts.

It was a peaceful demonstrations, but the words used were not peaceful.

Demonstrators called the federal Tories "crooks" over broken promises on the income trust taxation issue. Many say the prime minister lied about not touching their income trusts.

One woman says she travelled all the way from Vancouver to take part in the rally, because it not only effected her, but her husband, kids, and grandchildren.

One man was in the Halloween spirit, wearing a devil's mask and claiming to be Finance Minister Jim Flaherty.
Source: AM770CHQR Calgary

In Gwyn we trust? A fairy tale from a Conservative apologist.

This interview of Gwyn Morgan appeared on BNN Squeezeplay on October 31st 2007. CAITI has added commentary to highlight the contradictory statements of Gwyn Morgan and ask the questions we think that you, the small investor, would like us to ask.



Encana's share price performance vs. the TSX Energy Trust Index - October 31 2006 to November 1 2007



Related information:
Conservative spin check: What is Gwyn Morgan talking about?
Income Trusts are efficient at investing (PricewaterhouseCoopers)
Singapore's Trust model
Tax rates around the world

What would a retired physicist in the fields of nuclear energy and controlled thermonuclear fusion know that Harper doesn't?

Energy Trusts in Alberta
Will Zuzak; 2007.10.22

Since Finance Minister Jim Flaherty’s announcement on Oct. 31, 2006 that income trust distributions would be taxed at 31.5% at source, the major justification for his Halloween Trick has proven to be erroneous. There is no tax leakage.

BMO Capital Markets analysed all 126 companies that converted to income trusts since 2001 and found that tax raising effectiveness was increased by three times from $415.8 million to $1.234 billion per year (including deferred taxes in RRSPs). This comprehensive real world analysis demonstrates the vastly more effective tax generation associated with businesses formed as income trusts versus businesses formed as equity corporations.

All such analyses support my contention that, rather than killing income trusts, qualified equity corporations should be allowed, and even encouraged, to distribute a portion of their stable cash flow untaxed to their shareholders/unitholders, who would then be taxed at normal individual rates.

The issue of income trusts is even more critical in Alberta, where Energy Trusts have become very important players in the extraction of oil and gas from the Western Canadian Sedimentary Basin (WCSB). The 31 or so Energy Trusts produce about one million barrels of oil equivalent per day (boe/d) or about 20% of the total oil and gas produced in Canada.

The amount of oil and gas extracted per well has decreased drastically since their peaks in the 1970s. (See attached graphs from pages 26 and 27 of this report) In 1974, there were 17,900 oil wells producing on average 95 barrels/day for a total of 1.7 million b/d. In 2006, there are 58,800 oil wells producing 17 b/d for a total of 1.0 million b/d.

In 1972, there were 4,700 gas wells producing 250 boe/d for a total of 1.17 boe/d. By 2006 the number of gas wells increased 27-fold to 129,000 wells, while output per well decreased 12-fold to 22 boe/d for a total of 2.80 million boe/d. (Note: One boe/d = 6,000 cubic feet of natural gas.) Conventional oil production (excluding the tar sands) has been decreasing at 3.4% per year since 1997; whereas gas production has been flat since 2000. Because of the lower production per well, exploration and drilling costs per barrel (and per boe) have sky rocketed.

The 20 or so “Senior” equity Oil/Gas corporations have been fobbing off their depleting wells and fields onto the Energy Trusts, which have invested substantial money and effort to increase production from these fields. The “Junior” corporations (as they grow) have been selling their developed wells and fields to the trusts and reorganizing to do more exploration. In addition, the Energy Trusts have been repatriating foreign-owned assets back to Canadian control.

Since 2001, they have raised more than $20 billion in public markets and spent $27 billion in acquiring oil and gas properties.

Although the Seniors do pay dividends these are only about 12.4% of their earnings or 1.8% of gross revenue; whereas the Trusts distribute 137% of their earnings (about 60% of their cash flow) or 25% of gross revenue. The Foreign, Intermediate and Junior categories do not issue dividends. The tax revenue generated by the Energy Trusts per unit of production far exceeds that of the equity corporations.

The Alberta Royalty Review Report dated 18 September 2007 clearly indicates that the oil reserves in the bitumen of the Alberta Oil Sands dwarfs the remaining conventional oil reserves in the Western Canadian Sedimentary Basin by a factor of 100. However, although 24.1% of the easily recoverable oil reserves in the WCSB have been largely depleted by the big oil companies, the very large remaining reserves (61.8%, but costly to recover) will continue to be the lifeblood of Alberta’s oil industry for many more years. The figures for natural gas are similar. (See pages 47 and 48 of the above-mentioned report.)

The Energy Trusts have been at the forefront in applying sophisticated techniques to enhance the recovery from these depleted oil and gas fields. For example, in its submission to FINA, ARC Energy Trust indicates that in a particular field in Weyburn “CO2 flooding should improve the recovery from 30% to approximately 45% -- an incremental 130 million barrels for the total pool”. (See attached page 175 of this report.)

In my opinion, past provincial and federal governments, as well as the oil and gas industry itself, have been irresponsible in not ensuring maximum recovery of these non-renewable resources. Upon discovery of a new field, one would expect a detailed plan of recovery to be submitted to and approved by the relevant provincial government before exploitation could commence. Furthermore, provincial governments should ensure funding for research and development into new sophisticated recovery schemes, which might involve physical, chemical, biological, temperature (including nuclear energy) and robotic techniques.

In my opinion, the evidence in favour of Energy Trusts and against Jim Flaherty’s 31.5% tax levy is overwhelming.

The question then arises, if the evidence is so clear cut and overwhelming, why did Jim Flaherty and the federal government decide to kill income trusts, in general, and Energy Trusts, in particular? Why did all the provincial finance ministers support this assassination? Why did Shirley McLellan in Ralph Klein’s cabinet quote a tax loss to Alberta of $400 million in March 2006 and her successor Lyle Oberg in Ed Stelmach’s cabinet raise that figure to $450 million? Both figures are obviously untrue.

Why did Jack Layton of the NDP and his energy critic, Judy Wasylica-Leis, support a measure which is certain to lead to further impoverishment of the ordinary working Canadian and to increased foreign control of Canadian resources? This is contrary to the interests of the typical NDP voter.

Why did Stephen Harper appoint Mark Carney, who is adamantly opposed to income trusts, to be the new governor of the Bank of Canada when the present governor, David Dodge, retires? According to the 11Oct2005 issue of the Globe and Mail, Mr. Carney was at the forefront of efforts to kill income trusts even during the reign of Ralph Goodale. The article further states that Mr. Carney “earned his spurs at Goldman Sachs in the 1990s in the firm's Moscow office, where he advised on the privatizations that, for better and for worse, transformed Russia's state-owned industries into private enterprises”.

I am of Ukrainian origin and am, thus, particularly sensitive to the machinations of the Oligarchs in Ukraine and the Russian Federation. In my opinion, what happened there during the 1990s with their privatizations was a crime against humanity. The so-called "shock therapy" promoted by the "Harvard elite" resulted in the looting of the country to the benefit of criminals (who salted all their ill-gotten gains in foreign bank accounts) and to the detriment of the ordinary people. Is Jim Flaherty (and now Mark Carney) contemplating a similar fate for Albertans and the rest of Canada?

Several studies have shown that for the past twenty years the rich have been getting richer and the poor getting poorer in Canada, as well as in many other parts of the world. Politicians and economists complain that Canadians are going into debt and not saving enough in their RRSPs for their retirement years. Income trusts with their high and reasonably stable yields were perfect investments for RRSPs. Why remove this option for young working Canadians to invest in Canadian resources and Canadian-owned enterprises. Is this equivalent to “coupon clipping”? Why force them to invest in foreign countries, or in equity corporations, or in penny stocks? Is this not equivalent toplaying “the slot machines and casinos”?

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Dr. William Zuzak, Ph.D.,P.Eng. is a retired physicist in the fields of nuclear energy and controlled thermonuclear fusion. He lives in Edmonton, Alberta.

The Conservatives are more focused on saving face and not admitting they made a mistake - John Dielwart, Arc Energy Trust

"I personally and we collectively were quite naive a year ago at this time. We thought the facts mattered. We thought getting it right was the most important thing.

Our coalition has delivered a report that clearly refutes every single reason the government gave for acting against energy trusts and any objective viewer sees that we have an incredibly strong case including their own witnesses at the finance committee hearings. But quite frankly they are more focused on saving face and not admitting they made a mistake although clearly they have.

Therefore with this government, with this finance minister...

We're optimists, if we weren't we wouldn't be in this business. You always think there is hope, but there's more hope with a different party in power."
John Dielwart, October 31 2007



Additional Information:
How the Conservative decision impacted Arc Energy Trust

Nov 1, 2005 - Oct 31, 2007

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Do Energy Trusts Cause Federal Tax Leakage?

No. Federal and provincial government revenues are actually enhanced by the energy trust structure. During the past five years, CCET member trusts have generated greater taxes both provincially and federally than would have occurred had they been structured as corporations.

In 2005, the oil and gas trust sector generated over 30 percent of the tax revenue collected from publicly-traded Canadian entities in the oil and gas sector while representing only 16 percent of the revenue. Oil and gas royalty trusts have also generated over 40 percent more taxes than Canadian publicly traded senior independent producers on a unit-of-production basis.

The capital intensity of oil and gas exploration and production generates significant tax pools. As a result, oil and gas exploration and production corporations have historically paid minimal corporate taxes. In contrast, distributions from energy trusts generate:

• current personal income taxes from Canadians;
• additional tax from compounding investment in tax-deferred accounts; and
• a 15 to 25 percent withholding tax from foreign investors.
  

Because most CCET unitholders live outside Alberta, where all energy trusts are based, Canadians throughout the country share in the distributions paid and their provinces of residence benefit through hundreds of millions of dollars of increased tax revenues. Alberta, in turn, receives the benefit of additional
royalties on mature oil and gas producing assets, spending on goods and services in the province, employment and associated taxes, and all of the ancillary economic spin-offs associated with increased activity.
Source: Canadian Energy Trusts: An Integral Component of the Canadian Oil and Gas Industry

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A perspective on U.S. Flow-Through Structures

In support of its decision to tax trusts, the Department of Finance (DoF) stated that other countries (in particular the U.S. and Australia) had previously taken steps to shut down similar flow-through structures. We do not believe that this is an entirely accurate description. In the U.S., there are approximately 214 publicly traded flow-through entities, including master limited partnerships (MLP), limited liability corporations (LLC) and trusts, with a combined market cap of over $465 billion.

In this report, we provide some background on flow-through structures in the U.S. We also look at how U.S. flow-through valuations compare to Canadian trusts. In our opinion, these U.S. flow-through entities could become acquirers of Canadian trust assets over the coming years given the former’s significant cost of capital advantage and the suitability of the Canadian trust assets for their structure.

U.S. flow-through structures are essentially the same as Canadian trusts. The majority of pre-tax income is passed through to individual investors in the form of distributions and each investor pays personal tax on his or her distributions.

While the income of these entities must come from specified sources to qualify, the definition of these sources covers a broad range of industries, including oil and gas (production, transportation and refining), mining, fertilizer, propane distribution, timber and real estate.
Source: Digging Deeper

October 31st 2007: Brent Fullard and members of CAITI gather on Parliament Hill

Brent Fullard and members of the Canadian Association of Income Trust Investors gathered on Parliament Hill on October 31st, 2007.

A year ago Stephen Harper's surprise announcement to change taxation rules on Income Trusts lead to a $35 billion lose to small Investors. Brent Fullard explains the income trust issue to CPAC.

Conservative spin check: What is Gwyn Morgan talking about?

On Income Trusts:

"From the financial pain point of view it's good to see the trusts index is higher than it was last year at this time when the announcement was made"
Gwyn Morgan, October 31 2007

"From the ethical conduct point of view its disappointing to see that the cabal of self serving trust tax instigators, like Gwyn Morgan, are still promulgating false precepts and false arguments to disown the litany of negative consequences of their ill conceived act of betrayal"
Brent Fullard, November 1 2007

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All the Canadian Trust Indexes are down. Gwyn Morgan is wrong.

REITs vs TSX





Energy Trust Index vs TSX





Income Trust Index vs TSX

Garth Turner interviews John McCallum, Liberal Finance Critic on the Liberal 'Income Trusts' Plan.

An interview with Hon. John McCallum Liberal Finance Critic. Hon. Garth Turner and Mr. McCallum discuss the impact of Income Trusts, and the Conservative Government's Mini Budget. Source: MPtv - October 31st Webcast



Related:
Finance Committee Report on Income Trusts
Conservative Government's Decision on Income Trusts Wrong: Standing Committee on Finance

"You lied to Canadians", David Marshall tells Stephen Harper on Parliament Hill

Halloween 2007 marked the anniversary of the breach of promise of Stephen Harper NOT to cut income trusts. This day was celebrated by David Marshall’s march on Parliament Hill. He was joined by a throng of protesters ranging in age from seniors to baby boomers.

This group of disillusioned people were greeted on the Hill by Members of Parliament; Paul Szabo, Judy Sgro, Garth Turner, John MacCallum, Larry Bagnall and President and CEO of CAITI (Canadian Association of Income Trust Investors, Brent Fullard.

David Marshall spoke passionately about the impact on Canadians due to the loss of these income trusts. He particularly pointed out that Harper promised a Conservative Government “would never allow raiding seniors hard earned assets”.

MPTV interviewed Dorothy Vieman, Rosemary Helmer (Mississauga), William Barrowclough (Peterborough), and Larry Bagnell, MP.



Photo and video source: The Turner Report

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PM gets a scare from protesters

Trevor Pritchard
The Cornwall Standard Freeholder
November 1, 2007

David Marshall certainly wasn't afraid of giving Prime Minister Stephen Harper a spook or two this Halloween.

The 70-year-old Cornwall resident organized a rally that brought about 100 frustrated Canadians to Parliament Hill Wednesday afternoon, one year to the day the federal Conservatives announced their plan to tax income trusts.

Before being elected in January 2006, the Conservatives had campaigned on a promise not to tax the trusts - which many seniors, especially those without employee pension plans, had come to rely on as a steady source of income.

The Tory's new "Tax Fairness Plan" would see existing trusts be taxed at 31.5 per cent starting in 2011, and any new trusts be taxed at that rate immediately.

It was that broken promise which had left most of the people who assembled in Ottawa yesterday feeling ghastly. Most of the protesters had pinned yellow "I Got Screwed By Harper" ribbons to their clothes, and many carried signs with slogans like "Halloween Income Trust Massacre" and "Dictator Harper."

"The amount we lost isn't the important item," said Marshall, who wouldn't get into specifics about how the move had affected his and his wife Lorraine's finances. "The important item is the lying."

Like Marshall, some on-hand had voted Conservative in the previous election because of the party's stance on income trusts - a mistake they said they wouldn't be making the next time they went to the polls.

Retired Ottawa entrepreneur Jack Edmonson said he stood to lose about $30,000 in annual income because of his devalued investments. And because he was self-employed, he said, he would have no workplace pension to fall back on.

"I just think that it was so unconscionable to do that without providing public consultation on the matter," said Edmonson. "That's what a bully (or) a thug does, not a responsible politician."

William Barrowclough, a retired teacher from Peterborough, Ont., said while he'd be able to weather the financial storm, the reduced value of his investments left him with less money to pass on to his grandchildren.

In the next federal election, Barrowclough - who proudly admitted to voting for nearly every political party save for the Conservatives - promised he'd be backing the Liberals.

"I will not rest until I get to dance on the graves of Harper and (Finance Minister Jim) Flaherty," he said.

On the steps of Parliament Hill, Marshall and the other protesters were joined by a number of Liberal MPs, including finance critic John McCallum.

This May, the Liberals said they would do away with the Conservatives' tax and replace it with a more moderate tax of 10 per cent, paid by income trust companies but refundable to Canadians.

McCallum reiterated that promise yesterday.

"We're totally (committed) to our policy," he told the protesters. "You can't put all of the toothpaste back in the tube, but we're going to do what we can."

McCallum also accepted a petition with about 4,000 signatures calling for changes to the tax, and said he would present it to Parliament.

Stormont-Dundas-South Glengarry MP Guy Lauzon was not at the rally, but he told the Standard-Freeholder afterwards he sympathized with those who might have been adversely affected by the new tax regime. Lauzon said he'd read a recent report which suggested many of those trusts had rebounded to the level they were at before the tax was introduced.

All the provincial finance ministers agreed the step Flaherty took last October was fiscally sound, he added.

"I think unfortunately some people panicked and (sold their shares) and lost money as a result," said Lauzon. "(But) you just couldn't have big corporations not paying taxes."

Income trusts are also known as income funds and are set up to ensure a large proportion of a business' revenues flow directly to the investor in regular (often monthly) installments, says The Canadian Association of Income Funds.

The association said vast majority of income trusts are small to mid-sized businesses which would find capital costs prohibitively expensive without the investors.

There are more than 247 income trusts listed on the Toronto Stock Exchange, and they represent about 10 per cent of the market value of the TSX.

Income trusts do not pay corporate income tax on their profits, but investors pay personal income tax on the share of the revenues they receive.

Since they pay out monthly, income trusts are particularly appealing to retirees, especially those which have no workplace pension plan. Source: The Cornwall Standard Freeholder

Related:
No cowards here - The Turner Report

Marvin and Elaine Gottlieb explain why they are launching a NAFTA action against the Harper government

A press conference and interview with Marvin and Elaine Gottlieb, American income trust investors, and their legal advisors.

The Gottlieb's launched a Notice of Intent to submit a Claim to Arbitration against NAFTA (North American Free Trade Agreement).
Source: The Turner Report



Related:
NAFTA related articles in CAITI-ONLINE-MEDIA
The Gottlieb's NAFTA Trust Claims website

11/03/06: Mr Harper: I resign

Friday, November 3, 2006

Mr. Harper,

I Resign

I am the President of a major downtown Conservative Party Riding Association. I tell you this so you will know who I am. During the three years I have been President of the Association I have not had even one contact from you or anyone in your office. I am very angry at the Party’s action on Income Trusts. Shame on you.

First let me offer you congratulations on the support of the NDP and BLOQ, for the actions taken against small and medium sized investors in Income Trusts. I’m sure that by implementing their anti-investor policies you will gain exactly zero new voters. On the other hand you have just lost the next election. I’m also sure that Prime Minister Bob Rae will continue your practice of ruining small and medium investors.

Flaherty’s action on Tuesday evening has permanently reduced my net worth and income by a substantial amount. To compensate for this outrageous tax grab, your government has increased the Senior Tax Credit by $1,000, which is worth $160 – big deal; my contributions to the Conservative Party are a multiple of this amount. You will also allow “pension” income splitting between spouses. Well, I don’t have any pension, other then the Old Age & Security and the Quebec Pension Plan, so this is of little use to me. My income is primarily from my investments. As noted above, because of your governments attack on one group of investors, my income will significantly drop. Just so you know how it feels, I insist that you and Mr. Flaherty take an immediate and permanent 20% cut in your salaries. What’s fair for me should be fair for you.

I have worked very hard for the Conservative Party in the last number of election, because I believed in our economic philosophy and our platform. I was especially pleased with your pronouncement that a Tory government would not increase taxes on Income Trusts – in fact this was in the Party platform. You were either very careless with your statement or were lying because you, as an economist and a political policy analyst, understood the tax implications of the trust business structure. I would expect such behavior in Venezuela but not Canada – we look like a banana republic to non-Canadians. With the losses I have had, because of your unfair decision, I could have financed my grandchildrens’ education right through to university.

If the Liberals promise to grandfather the current tax treatment, for Canadians holding existing Trust Units and paying tax on the distributions, they will have my vote and I expect the vote of hundreds of thousands of other voters, perhaps a million plus.

I realize that things were getting out of hand with large corporations planning to convert to Income Trusts but why did you attack small and medium sized investors to solve this problem? Perhaps you and Flaherty could have put in place your Income Trust plan for new Trusts and leave existing Trusts alone. If the government was worried about tax leakage, because Trust Units are held in pension funds, RRSPs and by foreigners you should have used some imagination to solve the problem and not damage tax payers like me. As a tax payer I paid substantial taxes on my Trust distributions. In fact my personal tax rate, on these distributions, is higher then the corporate tax rate that might have been paid by the organizations which made the distributions, if they were taxable. I doubt there was much tax leakage from tax paying recipients, like me.

Do you realize that individual Canadians, through their pension plans, RRSPs and direct investments, have lost 78% of the $31 billion that have been lost in Income Trusts (as of Thursday)? This amounts to $24 billion or $727 per Canadian. However, the per Canadian losses are consecrated in people who trusted you. The $31 billion loss is 2.3% of Canada’s GDP, much higher than our foreign aid, and 6.4% of the Federal Government’s debt. What a colossal blunder. I read in today’s paper that Flaherty is considering advancing the further 1% reduction in GST. to next spring. He is trying to make up for his incredible mistake on Income Trusts. Well it won’t work.

The Income Trust structure was not a “tax loophole” or a “gimmick”. It was permitted under Canadian tax law and was perfectly legal. To treat all tax payers equally, the government should impose a 15% “tax” on all publicly traded security investments in Canada. Of course that is ridiculous, but that is what you have done to investors in Income Trusts. Imagine, you could probably eliminate the total Canadian debt with such a tax. You make the NDP look good

Comrade, the net result of my anger is that I can not longer be associated with a politically inept, incompetent political party, that hurts small and medium sized investors and that doesn’t live up to its promises. Therefore, I am resigning my position as President of the Conservative Party Riding Association and the Association board of directors. With this email I am also resigning as a member of the Party.

At the very least Flaherty must be fired for lack of imagination and bad judgment. As for you, you should get out more and make personal contact with the grass roots of the Party, so you will know what they think.

Yours sincerely

Sean Ahern, President (Past)
Westmount Ville-Marie Conservative Party Association

Related:
Long-time Tory angrily quits party over trusts

November 4, 2006
Gloria Galloway

OTTAWA — Sean Ahern helped organize a $500-a-plate brunch last Sunday to raise money for the Conservatives in the Montreal constituency of Westmount–Ville-Marie where he was riding association president. Yesterday, in response to the government's decision to tax income trusts, he tore up his party membership. Source: Globe and Mail

One year after Stephen Harper's Income Trust Betrayal: The Top Ten questions still unanswered.

OTTAWA, Oct. 31 /CNW/ - Stephen Harper broke his election promise to never raid seniors' nest eggs through taxing income trusts, by doing that very thing on Halloween 2006. 365 days later, the following questions for Stephen Harper remain unanswered:

(1) Where is your government's proof of alleged tax leakage? 18 pages of blacked-out documents are all that you have provided to back up this claim.

(2) Why were the taxes paid by 38% of all outstanding income trusts held in RRSPs and pension accounts not included when evaluating possible tax losses to the government?

(3) Where is the promised transparency and accountability? Such a sweeping change in tax law should at the very least have involved public consultation.

(4) Why did the Department of Finance demand the return of the 18 pages of blacked out documents issued under the Access to Information Act?

(5) How could the proposed conversions of BCE and Telus into income trusts have had any effect on tax revenue when neither were paying taxes as corporations and were not expected to for several years?

(6) What policy advantage is there, now that BCE has been taken private through a highly debt levered buyout, and which has caused a loss of the $793 million more PER YEAR that BCE would have paid as an income trust?

(7) How is the stated objective of tax fairness and leveling the playing field achieved when government sponsored pension plans are allowed to own trusts, free of tax in their private equity portfolios, while 70% of individual Canadians are not? Why are government sponsored pension funds exempted both from the punitive 31.5% tax and growth restrictions of this policy? Furthermore, why does income splitting for seniors only benefit the 30% of Canadians with pensions, and not the 70% without? Why is this government deliberately creating a two-tiered pension system in Canada? Is this the government's response to the retirement time bomb of an aging population?

(8) Why was the 15% withholding tax paid by foreigners on interest on leveraged buyout loans reduced to zero as part of this same tax policy, at a cost to Canadians of $300 million a year? This special foreign tax loophole makes Canadian public companies more susceptible to leveraged buyout foreign takeovers, at the same time as the trust tax causes them to become grossly undervalued, because of the discriminatory nature of the tax, which only applies to Canadians and not pension funds or foreigners. As such the government has, in effect, introduced tax subsidies to encourage foreign takeovers. Why?

(9) What effect will the loss of $2 billion in annual tax revenues arising from the $65 trust takeovers to date (including BCE) have on the average Canadian taxpayer or Canada's social program spending? Will individual taxpayers be the ones to make up the shortfall? Once the entire sector is taken over by foreign private equity and government sponsored pension plans, the loss in annual tax revenues will rise to $7.5 billion, the equivalent of a 1.5% GST increase. What plans are in place to address this inevitable shortfall in light of all the other tax reductions contained in yesterday's fiscal update amounting to $60 billion. At what point will the cupboard be bare?

(10) Stephen Harper wrote the following in the National Post on October 26, 2005. "Income trusts are popular with seniors because they provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine." If so, then why did he so abruptly and without notice or public consultation reverse his promise, leaving investors and seniors with losses of $35 Billion and their incomes reduced by 31.5% and in some cases 50%? How is this socially just or fair?

(11) Meanwhile, why is Jack Layton and the NDP supporting this policy when they profess to be against wholesale foreign takeovers of Canadian businesses and supposedly in favour of protecting seniors' dignity and seniors' retirement savings? Where is Jack Layton's and the NDP's proof of tax leakage? Is the NDP in possession of confidential insider information that would underlie the basis for the following claims contained in correspondence from NDP MPs to their many concerned constituents:

"I have spoken with the NDP party's Finance Critic, Judy Wasylycia-Leis, and she assures me that the government's estimates of future tax revenue losses, are solid."
Jack Layton

What is the basis for these assurances from Judy Wasylycia-Leis? Canadians are demanding of answers from both the Leader of the NDP and the Prime Minister of Canada on this cornerstone assumption.

Conclusion:

Taken as a whole, this is a travesty of democracy, starting with the breaking of a promise, the false premise for breaking the promise, the complete absence of consultation and the litany of adverse policy repercussions as the aftermath of a policy borne out of zero accountability and a complete lack of government transparency. All Canadians are adversely affected. Narrow special interests have successfully manipulated Canada's New Government for their selfish ends.

Alleged tax leakage is the cornerstone assumption behind this tax policy. It constitutes two of the five provisions of the Ways and Means Motion. The other three provisions of the Ways and Means Motion are verifiable constructs as well. Meanwhile transparency and accountability are the cornerstones of a democracy. The real danger to Canadians is that the Conservative Government is flagrantly undermining our democratic institution known as Parliament, if major tax laws are being enacted and passed on the basis of their foundations being assumed to be true, when in fact no proof whatsoever has been provided by the Government.

Dangerous Precedent:

This is an extremely dangerous precedent to have established, since it gives extraordinary powers to the Government to pass important legislation by invoking fact based arguments, that are devoid of fact based evidence. If this is allowed to occur under circumstances like these, then the risk for future abuse of our Parliamentary democracy under matters that are not verifiable in nature, is limitless.

Public Inquiry:

Stephen Harper together with Jack Layton, and the members of their respective parties are acting in concert to abrogate Canadians' democratic institution known as Parliament. As such, we are calling for a Public Inquiry, to fully examine the matter of alleged tax leakage, particularly in light of the Government's announced reduction in corporate tax rates by a staggering 32% from 22% to 15% in 2012. If the original policy intent on income trusts was to "level the playing field" with corporations, then this changed tax regime for corporations announced by the government yesterday, demands a re-examination of the extent to which these most recent measures will have tilted the playing field in favour of corporations and to the detriment of income trusts.

Furthermore, all Canadians need to establish whether Professor Jack Mintz was correct when he stated:

"I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero".
Jack Mintz

This level of uncertainty over the central premise of tax leakage is significant and fails to meet the standards of the Auditor General, who states:

"Parliamentarians need objective fact based information on how well the government raises its funds (taxes)".

Until this standard is met, Canadians will never know whether the following policy measure of this new tax is fact or merely political deceit:

"strengthening Canada's social security system for pensioners and seniors" (Ways and Means Motion)"

Brent Fullard
President & CEO
Canadian Association of Income Trust Investors
www.caiti.info

For further information please contact the:
Canadian Association of Income Trust Investors
media@caiti.info or by calling (647) 505-2224

Source: CNW

Income Trust Investors still angry at Harper Government decision

"These guys open their mouths and you know they are lying"
David Marshall, October 27 2007



Related:
Finance Committee Report on Income Trusts

“Halloween massacre‘‘ still horror story for oilpatch one year later

TORONTO _ Major oil patch players say Finance Minister Jim Flaherty‘s “Halloween massacre‘‘ has turned into a full-blown horror story a year later, with oil and gas income trusts more prone to foreign takeovers and less able to access capital.

“We‘re not just a bunch of spoiled brats concerned because a toy has been taken away. This is something that is an enormous mistake,‘‘ said John Dielwart chief utive of Arc Energy Trust.

Dielwart, whose company was among the first to adopt the popular investment model, has been one of the most vocal opponents to Flaherty‘s plan to impose a 31.5 per cent tax hike on income trusts by 2011.

Dielwart said Flaherty made a big mistake in interfering in capital markets, which helped a $100-billion energy trust sector.

“It wasn‘t a gimmick, it wasn‘t based on artificial tax advantages. It was based on a very solid business model,‘‘ he said. “This was, if not the optimal model, it was pretty darn close.‘‘

Eilat warns that Canada‘s oil and gas sector _ owned and operated and run by Canadians _ will get back into foreign control “and I don‘t think anybody wants that.‘‘

One key example is PrimeWest Energy Trust, which Abu Dhabi-based state-owned energy firm TAQA is proposing to take over for $5-billion.

“We‘re going to see a lot more of them fall into foreign hands,‘‘ said Ross Freeman, a partner in Calgary‘s Borden Ladner Gervais LLP, but he adds that most of the activity won‘t happen until the four-year grace period comes to an end.

“The vast majority of the royalty trusts are still out there. They‘ve hung in there. They‘re trying to take advantage of the remaining grand fathering period. But they‘re under increasing pressure to do something and certainly there‘s a lot of pressure from overseas,‘‘ Freeman said.

He says the biggest losers from the income trust decision have been junior producers.

“Killing income trusts was a very, very severe blow, not just to the income trusts themselves, but to the whole junior sector, and that‘s where the impact, I think, was grossly underestimated by a lot of people,‘‘ he said.

With the weakening of that structure, juniors are getting less investment and fewer are being “gobbled up‘‘ by other trusts.

“The amount of financing the juniors were able to be doing just crashed. They just couldn‘t get investors any more,‘‘ Freeman said.

The majors, on the other hand, are doing ok, he said.

“They were never in the model of distributing their cash flow. They were not a yield investment. Even the very largest ones pay only very modest dividends. So clearly they‘ve been the winners of all of this.‘‘

They majors have also done well in the face of the income trust decision because it‘s brought their operating costs down, Freeman said. The cost of drilling has plummeted by more than 50 per cent over the past year, leading to the creation of far fewer wells.

“From an oil and gas company‘s perspective, that‘s a positive, it‘s cheaper to drill. Not so good if you‘re a drilling contractor,‘‘ he said.

Les Stelmach, an analyst with Bisset Income Fund agrees larger players may not have so much to lose in the short term.

“They‘re large, they have diversified asset portfolios, so they‘re less sensitive to changes in commodity prices or changes to royalty rates. They‘re certainly a viable business 2011. For smaller trusts, they, too can be very viable,‘‘ Freeman said.

He says smaller energy companies can also remain viable if they carve out the right course.

“The crux of the matter is they can‘t pay as much for property so they‘re less likely to be as acquisition focused as they were in the past,‘‘ he said, adding producers that have carved out specific niches will do better than ones that rely solely on acquisitions.

As the chief of one of the so-called “majors,‘‘ Dielwart said he disagrees that the bigger companies aren‘t taking as much of a hit. He said his company saw a 25 per cent decrease in capital from pre-Oct. 31, 2006 levels.

He also takes issue with the argument that values have somewhat recovered since the initial blow. Arc Energy units are trading about $7 below what they were a year ago, which Dielwart blames on the income trust decision.

“One one who suggests that values have recovered are just not doing their homework,‘‘ he said.

Meanwhile, ripples are being felt south of the border, too.

A Chicago couple, saying Flaherty‘s move has cost Americans and Canadians billions of dollars in lost investments, is using a provision of NAFTA to challenge the Conservative government‘s move.

“The Halloween 2006 income trust decision by the Government of Canada has had a massive financial impact on thousands of investors in Canada and the U.S. and we believe that it breached Canada‘s NAFTA obligations,‘‘ Marvin Gottlieb said in a statement Tuesday on behalf of himself and his wife.

“Because of this decision, more than $30 billion has been lost by individual investors in Canada and more than $5 billion has been lost by energy trust investors, including Elaine and me, in the United States.‘‘

Source: Oilweek Magazine - Canadas Oil and Gas Authority