Tuesday, February 17, 2009

BNN - Income trusts draw strong opinions

Posted by Viewer response on February 4, 2009

Michael Kane's piece on income trusts -- Trust youself? -- received some strong responses from readers. Here are three that are representative:

Harper used an ICBM to kill the trusts when only a hammer was sufficient. All he had to do was halt the formation of business trusts thereby grandfathering the existing ones. He allowed the continuance of REITs but not the energy trusts, which form a key segment of the energy sector just like REIT's do in the real estate sector. His decision was flawed at the time he made it and remains flawed today.

The facts are:

  1. The owners of trusts in non-registered accounts pay tax on the distributions they receive except for the return of capital component.
  2. In many cases, including BCE, corporations, although they are eligible to pay tax, pay little if any because of their ability to effectively use their write-off capacity.
  3. The energy trusts are an integral component of Canada's energy business. They provide an option for keeping lower producing assets active rather than having them abandoned. Penalizing the energy trusts in effect means penalizing the economy through the loss of jobs directly and the loss of business in the hospitality sector in the small communities in the West.
  4. No credible proof has been produced by the Dept. of Finance that trusts represented a loss of tax revenue for Canada. In fact there are several reports that show tax revenue from trusts is greater than the tax would be if these trusts were corporations! An example would be BCE.
  5. Given the above, rescinding the trust tax would increase tax revenues, create jobs and be stimulative to the Canadian economy.

So you can easily see where we would be much better off today if Harper had not imposed the trust tax.

R. Staple

I'm astounded (but not entirely surprised) at your comments re income trusts. You show a complete lack of knowledge on the subject. You continue to foster the false notion that trusts enjoyed some tax advantage.

"WAKE UP AND SMELL THE COFFEE, MICHAEL" There was no tax leakage. A couple of years ago Flaherty mused that he didn't know where all the tax money was coming from!! Let me tell you, I paid in excess of 30K taxes in '05, '06 and '07. This fiscal year I will probably get a refund.

The mental midget ripped 200K out of my retirement portfolio and thinks this will have no impact on the Canadian economy.

Yes, I'm properly diversified and, yes, I understand the risks of investing. What I fail to understand is a change in regulations that results in no net benefit for anyone, not the Income trusts, not other companies, not the Canadian taxpayer. Absolutely no one is better off as a result of this ridiculous policy.

If there was a concern that large companies would convert to the trust structure why not just put a moratorium on new conversions until the problem was properly studied. Never mind the fact that our illustrious PM clearly stated that he would not TOUCH income trusts.

This has been the most unfair legislation that has ever been passed in the history of the financial world. I know I'm not alone. Thousands of people just like me have lost billions out of their portfolio, have had their lifestyle severely impaired.

We need an advocate to champion our cause. HOW ABOUT IT? Speak up for the powerless, maligned investors.

W. Kozan

Many companies flourished and created thousands of tax paying jobs as a result of the income trust structure. Look around at the many successful businesses built up under the trust model. The cash flow passed on to investors was largely taxed at higher rates than corporations pay.

Many of these trusts have now gone into the ownership of pension funds. Perhaps the government needed to do something to clarify the "rules." Perhaps "ordinary" small Canadian investors shouldn't be entitled to own companies without being subject to double taxation.

But I doubt very much that putting a stop to income trusts has done anything to keep the federal budget from going into a deeper deficit. Harper and his toy bulldog finance minister can take that blame themselves. But don't fret for them. Their golden parachute pensions will be safe and will guarantee they'll never have to risk a penny on the "markets."

J. Stuart