Conservatives Plans News Tax on Trusts

Figleaf · November 6, 2006

Advisors are paid to educate people on the risks of the investments that they recommend. The political risk existed and could have happened at any time.
Except the tories had promised not to. I don't get how you can keep overlooking that.
Any advisor that recommended an investment strategy based on promise made by a politician during a campaign is an idiot.

Okay, so you're saying anyone would be a fool to believe the tories' promises?

Figleaf · November 6, 2006

Hey Riverwind, Figleaf is right! They did campaign against meddling with income trusts. As I recall they were calling the Liberals bad names for considering it prior to Harpers' arrival at 24 Sussex Drive.

They promised to protect seniors.

They have.

Harmed some, benefitted others.

Riverwind · November 6, 2006

Okay, so you're saying anyone would be a fool to believe the tories' promises?

I am saying that someone who made investment decisions that depended on the whim of a politician is a fool. The problems with the tax system created by trusts were well known and any diligent advisor should have informed clients that trusts are risky investments and you could lose a significant portion of your investment suddenly if the regulatory environment changed suddenly. A competent advisor should have informed clients that Harper's promise might mean that the regulatory risk is lower (but not zero) in the next 18 months but after the next election all bets would be off.

No matter how many fingers you point at the CPC you cannot escape the fact that you made a risky investment decision and the risks were well known in advance (for those that chose not to delude themselves). In any case, trust investors got off lucky - in most cases their investments are still worth what they were a year ago and will likely stabilize at that price even as the taxes kick in.

Figleaf · November 6, 2006

Okay, so you're saying anyone would be a fool to believe the tories' promises?
I am saying that someone who made investment decisions that depended on the whim of a politician is a fool. The problems with the tax system created by trusts were well known and any diligent advisor should have informed clients that trusts are risky investments and you could lose a significant portion of your investment suddenly if the regulatory environment changed suddenly. A competent advisor should have informed clients that Harper's promise might mean that the regulatory risk is lower (but not zero) in the next 18 months but after the next election all bets would be off.

Okay, so no-one in the financial world should ever rely on even the most explicit government promises. All states are totally unreliable and everyone should re-evaluate the danger of political risks. Well, that's an internally consistent view, I guess, but it bodes ill for the cost of capital.

No matter how many fingers you point at the CPC you cannot escape the fact that you made a risky investment decision and the risks were well known in advance (for those that chose not to delude themselves).

Actually, I had hardly anything in trusts. I've actually done well out of this due to having large positions in blue chip dividend paying corporations which have received a boost from the cash flowing out of trusts.

I guess some people have a hard time thinking this way, but my position is not based on self-interest. It's based on principle ... the principle that politicians shouldn't irresponsibly screw over investors.

Riverwind · November 6, 2006

Okay, so no-one in the financial world should ever rely on even the most explicit government promises. All states are totally unreliable and everyone should re-evaluate the danger of political risks. Well, that's an internally consistent view, I guess, but it bodes ill for the cost of capital.

There little risk making decisions based on stated gov't policy when the policy is rational. There is a huge risk involved when you make decisions based on promises that are simply irrational. When you look at the facts you quickly realize that the gov't had to change something.

I guess some people have a hard time thinking this way, but my position is not based on self-interest. It's based on principle ... the principle that politicians shouldn't irresponsibly screw over investors.

You position is hardly principled - partisan trolling would be a better description. Were you equally upset with the Liberal flipflop on the GST?

August1991 · November 6, 2006

There is a supreme irony in seeing some of Canada's left criticize Harper for raising taxes on corporations.

I think some Leftists just can't resist playing the man, not the ball. There is something childish or adolescent in this. It's like standing up to a teacher, a symbol of authority. Even when Harper does something that Leftists like, they still criticize Harper.

This Income Trust decision also contains the Leftist predilection for needless arcane complexity. Figleaf, not more than 3% of voters will pay any attention to the details of this debate. You and I seem to find this topic interesting but few others do.

Well, at least the NDP has supported this decision.

One can criticize Harper for making the promise during the campaign. He probably shouldn't have. In fact though, his promise about Income Trusts really concerned protecting seniors' savings and this he has done. I'm sure Harper has no trouble looking at himself in the mirror in the morning when he shaves.

In a stock market, for everyone who buys, there is someone else who sells. The loss to one person is a gain to someone else.

You've said that before, but it's just not correct, as I explained the first time.

You never explained it the first time. You only gave the example of a derivative market.

A stock market is a secondary market in financial paper. Like a used car market, General Motors receives no benefit once its share is initially sold. From then on, people trade among themselves claims on General Motors. It's a zero-sum game. It's only net benefit for society is in the information it provides.

The latest information is that income trusts are not a good investment which is as it should be. As you noted:

I think the difference in tax treatment was driving business choices, which is never good policy.

Figleaf · November 6, 2006

There is a supreme irony in seeing some of Canada's left criticize Harper for raising taxes on corporations.

Speaking as a non-leftist and non-rightist, I'm amazed and amused at the rightwingers defending the Conservatives for destroying stock market wealth and undermining our capital markets in order to raise taxes that we seemingly don't even need.

Figleaf, not more than 3% of voters will pay any attention to the details of this debate. You and I seem to find this topic interesting but few others do.

There seems to be no shortage of replies on this thread.

In a stock market, for everyone who buys, there is someone else who sells. The loss to one person is a gain to someone else.

You've said that before, but it's just not correct, as I explained the first time.

You never explained it the first time. You only gave the example of a derivative market.

Maybe that's where you stopped reading. I recall mentioning that corporations create real value and that their price is based on the expectation of that value.

I'll add here that the sellers' gains don't rely on a buyer's loss because the seller gets the full price (in liquid useable cash) they seek at an existing value, and the buyer gets the benefit of future value by taking on a real risk of decline.

In fact, August, I don't mean to be rude, but your thinking about winners and losers on the stock market is exactly wrong -- though it is correct in respect of the derivatives markets.

A stock market is a secondary market in financial paper. Like a used car market, General Motors receives no benefit once its share is initially sold. From then on, people trade among themselves claims on General Motors. It's a zero-sum game. It's only net benefit for society is in the information it provides.

No no no. It's net benefit is that it creates liquidity to fund business growth. If there was no stock-aftermarket, then it would be much harder to raise initial capital because the initial buyers would buy less because they would be stuck with illiquid investments.

Topaz · November 7, 2006

The next question is, how many Conservatives and family members, will reap the benefits of having dividend funds?

geoffrey · November 7, 2006

The next question is, how many Conservatives and family members, will reap the benefits of having dividend funds?

Eh?

August1991 · November 7, 2006

It's net benefit is that it creates liquidity to fund business growth. If there was no stock-aftermarket, then it would be much harder to raise initial capital because the initial buyers would buy less because they would be stuck with illiquid investments.

That's true as a primary market. But once the share is issued, it's of no benefit to the issuer. I don't disagree that without a secondary market, the initial price would be lower.

Everyone, including car manufacturers, takes a look at the price of the same model, previous year before buying a new car. What's the resale value like? But GM gets nothing else from a used car sale.

The (secondary) stock market is similarly a zero-sum game. The net benefit to society is the information it provides, and of course, like in all markets, the good or asset goes to the person who values it more. Of course, someone gets to drive a used car and someone receives dividends and these are net benefits.

I recall mentioning that corporations create real value and that their price is based on the expectation of that value.

Don't confuse corporations creating "real" value and the stock market's valuation of this.

I'll add here that the sellers' gains don't rely on a buyer's loss because the seller gets the full price (in liquid useable cash) they seek at an existing value, and the buyer gets the benefit of future value by taking on a real risk of decline.

I think this gets at the heart of what I meant. In a bear market, the buyer's monetary gain is the seller's loss. It's a closed system. When a share price falls (or rises) as it did recently, those gains or losses are entirely captured. The net gain or net loss to society must be seen in the change of behaviour.

In fact, August, I don't mean to be rude, but your thinking about winners and losers on the stock market is exactly wrong -- though it is correct in respect of the derivatives markets.

An options market is no different from a secondary stock market. And it's strictly incorrect to say that they are zero-sum. They both provide benefits to society.

Figleaf · November 7, 2006

It's net benefit is that it creates liquidity to fund business growth. If there was no stock-aftermarket, then it would be much harder to raise initial capital because the initial buyers would buy less because they would be stuck with illiquid investments.
That's true as a primary market. But once the share is issued, it's of no benefit to the issuer.[ I don't disagree that without a secondary market, the initial price would be lower.

If you agree about the secondary market, then you agree about the main value of the stock market. I'm not sure why it's significant the once issued share are of no benefit to the issuer. They represent ownership and the issuer has already received the benefit, so I can't see how no FURTHER benefit matters.

The (secondary) stock market is similarly a zero-sum game.

No, it's not. A zero sum game requires that for each 'win' there be comensurate 'loss'. I've explain how that's incorrect. The seller doesn't lose because she gains the benefit of liquid cash and terminating a risk position. The buyer doesn't lose because she gains a stock she values at a certain price and the benefit of potential future gains.

An options market is no different from a secondary stock market. And it's strictly incorrect to say that they are zero-sum. They both provide benefits to society.

I think maybe there's some confusion about what we mean by zero-sum here. If you mean markets provide no net benefit to society, they you're mistaken because financial instruments improve overall liquidity and thus accelerate money. If you mean markets are zero-sum because for each win there is a commensurate loss, then as noted above, that's not true of stock markets. But is is true of derivatives markets because in those cases there are actual counterparties taking directly opposing interests arising from the outcome of a future event.

normanchateau · November 7, 2006

There is a supreme irony in seeing some of Canada's left criticize Harper for raising taxes on corporations.
I think some Leftists just can't resist playing the man, not the ball. There is something childish or adolescent in this. It's like standing up to a teacher, a symbol of authority. Even when Harper does something that Leftists like, they still criticize Harper.

I think the criticism in part reflects the fact that Harper, who once took pride in not breaking promises,

has now irreversibly lost that moral superiority. It's like losing one's virginity. It can never be restored.

But taxing the trusts per se is supported by left wing parties. Canada's two parties of the left, the BQ and NDP, have both said they will support the Harper legislation. So the legislation will pass. I'm sure the investment community is thrilled that Harper's legislation required votes from the anti-corporate welfare and anti-business BQ and NDP to pass.

mcqueen625 · November 7, 2006

No sane person thought that the governments would let all the big companies go the Income trust route. It was only a matter of time before the loophole was closed. I do not think it will bother too many that this has happened, but you never can tell. I am pretty sure most thought it would be closed soon but maybe not this soon.

I agree. It didn't stop the Conservatives from calling the Liberals anti-business when they considered rules on trusts. Now they fear the same backlash but it will come from their business supporters.

The stock market is going to drop like a stone tomorrow.

The big difference is that the Liberal just talked about it, and the Conservatives actually acted on it. Big deal that they said they wouldn't do it, this shows that they put the interests of ordinary Canadian's above those of their corporate friends. All the Liberal evcer did was talk about doing something positive but all they ever accomplished was to rip us off through things like the gun registry, the sponsorship program and the list could likely go on forever. If the Conservative had allowed it to continue the whole tax burden would have eventually fallen on the working people of this country, and I don't mean the corporate CEO and other executives, since the top 10% of earners pay little or no taxes in Canada.

southerncomfort · November 8, 2006

The federal government did the right thing for the future health of the Canadian economy and the fairness of the tax system

August1991 · December 20, 2006

Stephen Harper says his decision to tax income trusts after campaigning against the idea was the most difficult choice he's had to make as prime minister.
But he insists it was the right thing to do. "The toughest decision for the government was the income trust decision," he said Tuesday in a yearend interview with The Canadian Press. "It's not something we planned to do but it became apparent we had to do it. All neutral observers have concluded that."

Canoe

No comment.

jdobbin · December 20, 2006

Stephen Harper says his decision to tax income trusts after campaigning against the idea was the most difficult choice he's had to make as prime minister.
But he insists it was the right thing to do. "The toughest decision for the government was the income trust decision," he said Tuesday in a yearend interview with The Canadian Press. "It's not something we planned to do but it became apparent we had to do it. All neutral observers have concluded that."

Canoe
No comment.

Perhaps he should have commented on the stupidity of his own election promise.

geoffrey · December 20, 2006

On Friday, Flaherty tossed the income trust sector a bone with what he called "generous" rules that allow existing trusts to double in size by 2011 without forfeiting their tax-free status.

I thought they were tax-free to 2011 regardless (in fact, I don't think this, it's true).

Now Flaherty has set a cap on their growth too, now they could be taxed even earlier.

This smells worse than day one. The CPC is the same old same old. Big government, big taxes.

Ricki Bobbi · December 20, 2006

I thought they were tax-free to 2011 regardless (in fact, I don't think this, it's true).
Now Flaherty has set a cap on their growth too, now they could be taxed even earlier.

This smells worse than day one. The CPC is the same old same old. Big government, big taxes.

Hey Geoffrey, given your never-ending hatred of the Conservative's over the issue how about answering this question that you have ignored a few times?

What is the value on the money you had invested in income trusts on January 23rd? Could it be that you refuse to answer because it shows how hollow your cries of indignation over the issue are?

geoffrey · December 20, 2006

Hey Geoffrey, given your never-ending hatred of the Conservative's over the issue how about answering this question that you have ignored a few times?
What is the value on the money you had invested in income trusts on January 23rd? Could it be that you refuse to answer because it shows how hollow your cries of indignation over the issue are?

About 25% of my total investment portfolio, of which I only lost 3% (of the 25%) when all was said and done and the rebound afterwards occured (I never panick-sold on this one). It'll likely recover completely in the near future.

It's not about losing money, though that's a part of it. The basis of my objective to the move is two-fold:

1) Breaking a solid tax promise scares off investment from foreigners and locals alike. I'd much rather put my money in a place where I know what the tax laws are going to be, not one where a government whimsically changes their policy day to day... as we see again with Flaherty's second change already.

2) Giving up on the one instrument that had the ability to force the government the other way and seriously reduce the investment tax in this country to encourage investment (domestic and foreign) and bring out system into a 21st century mentality... it'll be the death of our status as a wealthy nation.

Riverwind · December 20, 2006

Giving up on the one instrument that had the ability to force the government the other way and seriously reduce the investment tax in this country to encourage investment (domestic and foreign) and bring out system into a 21st century mentality... it'll be the death of our status as a wealthy nation.

Almost every country has corporate taxes. Our biggest competitor and trading partner started taxing trusts years ago. Furthermore, in our federation of provinces squabbling over tax revenue it is unlikely provinces are going to be happy to see untaxed corporate income in one province going to investors in another province. Corporate taxes are not going away any time soon. You should be glad that the the CPC moved decisively on the issue because Canadas big banks were likely next in line to convert and that would have brought public opinion firmly onside (nothing annoys Canadians more than the thought of untaxed banks).

geoffrey · December 20, 2006

Corporate taxes are not going away any time soon. You should be glad that the the CPC moved decisively on the issue because Canadas big banks were likely next in line to convert and that would have brought public opinion firmly onside (nothing annoys Canadians more than the thought of untaxed banks).

Only due to the stupidity and ignorance of the average Canadian! Where do bank profits go?! Oh right! Into our RRSP's!

Damned corporate profits, let's cut them down to nothing! Tax them all to hell.

If you want to decrease your return for all your investments, we can continue down this path... or we can fix the problem by cutting corporate rates.

Canada has an investment/savings problem. Making more money from your investments would have more people investing. Corporations paying less taxes means you and I get more money.

Perhaps cheaper products too.

mikedavid00 · December 20, 2006

Making more money from your investments would have more people investing. Corporations paying less taxes means you and I get more money.
Perhaps cheaper products too.

And more jobs.

Corporations are here to benefit the people, not for a cash grab for the gov't.

August1991 · December 20, 2006

About 25% of my total investment portfolio, of which I only lost 3% (of the 25%) when all was said and done and the rebound afterwards occured (I never panick-sold on this one). It'll likely recover completely in the near future.

So, in the big picture, why are you making all this noise?

You're like the customer who shows up on Monday and complains about missing the sale on Saturday when Monday's sale is even a better bargain. Jeesh.

Typical farmer mentality. There's either too much rain or not enough, and it's always the fault of the CPR or the freight rates.

2) Giving up on the one instrument that had the ability to force the government the other way and seriously reduce the investment tax in this country to encourage investment (domestic and foreign) and bring out system into a 21st century mentality... it'll be the death of our status as a wealthy nation.

On the contrary, income trusts are a particularly dumb way to reduce taxes. Income trusts are tax policy à la Scott Brison.

hiti · December 20, 2006

Interesting that Telus and BCC haven't been paying any taxes since ???

Also interesting is that staunch Tory/Harper supporters are now refusing to ever vote for him again because he has hit them where it hurts the most, in their wallets. With ITF, personal income taxes and the GST is not making a difference to the bottom line. Tis so sweet to hear them trash ole Steve when just a year ago I couldn't say a word about politics or Harper without getting my head bite off.

The voters understand lies. What they can't forgive is the thievery of their hard earned $$$ by Steve and Jimmie.

Ricki Bobbi · December 20, 2006

The basis of my objective to the move is two-fold:
1) Breaking a solid tax promise scares off investment from foreigners and locals alike. I'd much rather put my money in a place where I know what the tax laws are going to be, not one where a government whimsically changes their policy day to day... as we see again with Flaherty's second change already.

2) Giving up on the one instrument that had the ability to force the government the other way and seriously reduce the investment tax in this country to encourage investment (domestic and foreign) and bring out system into a 21st century mentality... it'll be the death of our status as a wealthy nation.

The tax promise probably wasn't as solid as you tend to believe. It was a broken promise but look at the actual promise, to protect and help seniors. Which they did with income splitting and other measures. Regardless of the change to income trusts

Canada does not have the political environment conducive to the stability you seek. Minority governments just don't allow for that.

This question leads into the next quote. Did you ever consider yourself a *staunch* Conservative supporter? Something tells me that come election day you are likely to hold your nose and vote Conservative ... just a hunch though.

Also interesting is that staunch Tory/Harper supporters are now refusing to ever vote for him again because he has hit them where it hurts the most, in their wallets.

Hmmm typical histrionics. Refusing to ever vote for him again? I think you are over-stating that one just a little.