Conservatives Plans News Tax on Trusts

[Figleaf]

I haven't seen the Friday figures but at the end of the day Thursday, $36 billion was lost. This was because the government was worried about losing $500 million in tax revenues from the income trusts.

Another way of putting it, the Harper government was willing to allow income trust investors to lose, on average , $72 for each tax dollar the government gains in return.

If we simply take the $36 billion loss figure and work out the capital gains that would have been due, the Harper government is out, theoreticaly, $8 billion in tax. Suppose by the time the dust settles, the government is out only $1 billion in potential taxes on capital gains. That's still losing twice as much as they're gaining by taxing the trusts.

If the Harper government is worried about future conversions of corporations to trusts, why not have a grandfather clause so that only future conversions are affected? Had this happened, all current trusts would have maintained their value. And Harper would not be accused of breaking an election promise.

Excellent points.

Regarding tax leakage, most advisors are now telling investors to crysalize their capital losses on the collapsed trusts -- ensuring that the government now loses not just the capital gains on the trusts themselves, but on whatever other capital gains the investors set the losses off against.

The bare facts are that not only did the government's lie completely 4uck over investors, it screwed itself too. The sheer incompetence of this move, let alone the dishonesty, should have people ready to turf the tories at their first opportunity.

[Riverwind]

Regarding tax leakage, most advisors are now telling investors to crysalize their capital losses on the collapsed trusts -- ensuring that the government now loses not just the capital gains on the trusts themselves, but on whatever other capital gains the investors set the losses off against.

Gawd, you mean people are going to follow the advice of the same advisors who suggested they go overweight on trusts in the first place?

I can understand why an average person might have been blindsided by the change in policy, however, any financial advisor should have seen this coming and advised their clients to reduce their holdings of trusts. Any who didn't is guilty of incompentance.

[Canuck E Stan]

The sheer incompetence of this move, let alone the dishonesty, should have people ready to turf the tories at their first opportunity.

History has shown that this kind of thing won't affect the general public enough to turf anyone.

Chretien said he was going to get rid if the GST, an item that got him into power and he reneged on that promise but still went on to win again and again.

Most people in Canada have a negative savings and don't really care about corporations who make billions in profits and cry the blues over having to pay more taxes.

And most I think would say the same for their fellow Canadians who have invested heavily in income trusts and have lost out. You shouldn't have all your eggs in one basket, I'm sorry you lost but it is never a sure thing.

[Figleaf]

Regarding tax leakage, most advisors are now telling investors to crysalize their capital losses on the collapsed trusts -- ensuring that the government now loses not just the capital gains on the trusts themselves, but on whatever other capital gains the investors set the losses off against.

Gawd, you mean people are going to follow the advice of the same advisors who suggested they go overweight on trusts in the first place?

Well heck, people keep telling me some of them will vote tory again! Anyway, crystalizing the loss makes sense if they have gains to set off against.

I can understand why an average person might have been blindsided by the change in policy, however, any financial advisor should have seen this coming and advised their clients to reduce their holdings of trusts. Any who didn't is guilty of incompentance.

I don't agree. Advisors were perfectly right to tell people to include some trusts as part of a diversified portfolio, and advisors had no more reason than anyone else to think the tories would go back on their promise in such a shocking and destructive fashion.

[normanchateau]

I haven't seen the Friday figures but at the end of the day Thursday, $36 billion was lost. This was because the government was worried about losing $500 million in tax revenues from the income trusts.

Another way of putting it, the Harper government was willing to allow income trust investors to lose, on average , $72 for each tax dollar the government gains in return.

If we simply take the $36 billion loss figure and work out the capital gains that would have been due, the Harper government is out, theoreticaly, $8 billion in tax. Suppose by the time the dust settles, the government is out only $1 billion in potential taxes on capital gains. That's still losing twice as much as they're gaining by taxing the trusts.

If the Harper government is worried about future conversions of corporations to trusts, why not have a grandfather clause so that only future conversions are affected? Had this happened, all current trusts would have maintained their value. And Harper would not be accused of breaking an election promise.

Excellent points.

Regarding tax leakage, most advisors are now telling investors to crysalize their capital losses on the collapsed trusts -- ensuring that the government now loses not just the capital gains on the trusts themselves, but on whatever other capital gains the investors set the losses off against.

The bare facts are that not only did the government's lie completely 4uck over investors, it screwed itself too. The sheer incompetence of this move, let alone the dishonesty, should have people ready to turf the tories at their first opportunity.

Other than incompetence, can you think of any reason why they wouldn't have put in a grandfather clause to avoid the whole fiasco while preventing income trust proliferation? The grandfather clause would have prevented any future conversions of corporations to income trusts which was Harper's stated rationale for the tax.

[Ricki Bobbi]

Other than incompetence, can you think of any reason why they wouldn't have put in a grandfather clause to avoid the whole fiasco while preventing income trust proliferation? The grandfather clause would have prevented any future conversions of corporations to income trusts which was Harper's stated rationale for the tax.

Fear of lawsuits?

How far along the process did a company need to be to be grandfathered?

Doesn't grandfathering create an uneven playing field?

There are a lot of reasons 'other than incompetence'.

[Figleaf]

Other than incompetence, can you think of any reason why they wouldn't have put in a grandfather clause to avoid the whole fiasco while preventing income trust proliferation? The grandfather clause would have prevented any future conversions of corporations to income trusts which was Harper's stated rationale for the tax.

Interesting question. Nothing other than incompetence leaps to mind ... it's not like the fisc is hard-up for money these days. I suppose grandfathering might be seen to be unfair to those who were thinking about converting and would then be prevented, but compared to the harm that came from what they chose to do it would be slight. What do you think?

[Ricki Bobbi]

Interesting question. Nothing other than incompetence leaps to mind ... it's not like the fisc is hard-up for money these days. I suppose grandfathering might be seen to be unfair to those who were thinking about converting and would then be prevented, but compared to the harm that came from what they chose to do it would be slight. What do you think?

Our responses crossed so I'll post mine again.

Fear of lawsuits?

How far along the process did a company need to be to be grandfathered?

Doesn't grandfathering create an uneven playing field?

There are a lot of reasons 'other than incompetence'.

[Figleaf]

The promise was to maintain a status quo.

When the status quo didn't involve Encana, BCE and Telus converting to income trusts. The situation changed, there was no status quo to protect.

http://www.google.com/search?hl=en&lr=...amp;btnG=Search

Now can you please stop challenging my knowledge with your ignorance?

The first five links on your google search are from:

1. A philosohpy message board.

2. A translation from a French university Web site.

3. The blog of a self-described artist and punk musician.

4. A web site dedicated to the making the world better off for the New Millennium.

5. An article on providing "what every debater should know about economics".

You would think a standard finance industry term would return some links to finance industry pages.

Now can you please stop showing your lack of knowledge and highlighting it with such an ignorant and condescending response!

It's you who wanted a source within two minutes. Why don't you look at the rest of the hits instead of deeping the impression of ignorance you already give?

[Riverwind]

I don't agree. Advisors were perfectly right to tell people to include some trusts as part of a diversified portfolio, and advisors had no more reason than anyone else to think the tories would go back on their promise in such a shocking and destructive fashion.

Any advisor who understood the economics involved should have expected the gov't to act the day BCE announced its conversion. Circumstances change - gov'ts must govern according to the circumstances.

[Riverwind]

Doesn't grandfathering create an uneven playing field?

Exactly, BCE had to convert because Telus did. Allowing existing energy trusts to stay untaxed would undermine their competitors that are regular corporation.

[Ricki Bobbi]

It's you who wanted a source within two minutes. Why don't you look at the rest of the hits instead of deeping the impression of ignorance you already give?

Why not answer the question?

Wouldn't an accepted term in the investment industry be found on industry related web sites?

The first five hits not being from investment industry Web sites was enough to show me you really didn't know what you were talking about...

[normanchateau]

Interesting question. Nothing other than incompetence leaps to mind ... it's not like the fisc is hard-up for money these days. I suppose grandfathering might be seen to be unfair to those who were thinking about converting and would then be prevented, but compared to the harm that came from what they chose to do it would be slight. What do you think?

Our responses crossed so I'll post mine again.

Fear of lawsuits?

How far along the process did a company need to be to be grandfathered?

Doesn't grandfathering create an uneven playing field?

There are a lot of reasons 'other than incompetence'.

I don't know about the first two but I suppose I could buy the uneven playing field explanation (which I think is consistent with Figleaf's hypothesis about those contemplating conversion).

But don't you think that if they had considered the grandfather clause notion then ruled it out, they'd have at least told us so in order to prevent themselves from looking incompetent? I know if I were springing a dramatic change like this and it required a broken promise, I'd want to cover all my bases including explaining why I ruled out the grandfather clause option.

You're willing to give them the benefit of the doubt because you support their party but don't forget most Canadians don't.

[Figleaf]

It's you who wanted a source within two minutes. Why don't you look at the rest of the hits instead of deeping the impression of ignorance you already give?

Why not answer the question?

Wouldn't an accepted term in the investment industry be found on industry related web sites?

I'm sure if you look at them, you'll find it. For example, check out the comments made by Kevin O'Leary on ROBTV last night.

The first five hits not being from investment industry Web sites was enough to show me you really didn't know what you were talking about...

I've already said I gave you the quick answer you demanded. What is your point? Do you really believe I made up the expression? If I show you you're wrong, would you ever admit it? Try this:

http://www.google.com/search?hl=en&lr=...amp;btnG=Search

NOW will you please stop trying to challenge my knowledge with your ignorance? It's bothersome, and a waste of time and bandwidth.

[Ricki Bobbi]

I've already said I gave you the quick answer you demanded. What is your point? Do you really believe I made up the expression? If I show you you're wrong, would you ever admit it? Try this:

http://www.google.com/search?hl=en&lr=...amp;btnG=Search

NOW will you please stop trying to challenge my knowledge with your ignorance? It's bothersome, and a waste of time and bandwidth.

Never demanded a *quick* answer. Why not take your time and look at the first five sources from this search.

1. An open, community blog with no specific focus on finance.

2. A blog by "Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities."

3. A page from "Workers world" workers and oppressed peoples of the world unite!

4. A page from The Hindu's web site. (A British paper for the Hindu community.)

5. A page from Safehaven.com. A site about taking a long-term investing. Good for you. Only took ten hits to find one page

Good for you ten links to find one tanegitally related to investments. Doesn't sound like standard industry terminology to me. Do you want a shovel to keep digging that hole?

If you can show me I am wrong I will be more than willing to admit my mistake.

I haven't challenged your knowledge because you haven't shown any.

[Figleaf]

I've already said I gave you the quick answer you demanded. What is your point? Do you really believe I made up the expression? If I show you you're wrong, would you ever admit it? Try this:

http://www.google.com/search?hl=en&lr=...amp;btnG=Search

NOW will you please stop trying to challenge my knowledge with your ignorance? It's bothersome, and a waste of time and bandwidth.

Never demanded a *quick* answer.

I took this:

...if it is standard industry terminology it should take you about two minutes to find support. Don't think you will though...

to have that implication.

Why not take your time and look at the first five sources from this search.

Why not take your time and review the rest of the hits?

1. An open, community blog with no specific focus on finance.

2. A blog by "Longtime Houston attorney Tom Kirkendall's observations on developments in law, business, medicine, culture, sports, and other matters of general interest to the Houston business, professional, and academic communities."

3. A page from "Workers world" workers and oppressed peoples of the world unite!

4. A page from The Hindu's web site. (A British paper for the Hindu community.)

5. A page from Safehaven.com. A site about taking a long-term investing. Good for you. Only took ten hits to find one page

All of which use the term in the fashion I used it. Face facts, it's a common term. Take a look at Kevin O'Leary's comments on ROBTV yesterday. Would you believe him? And why don't you believe #5 knows what it's talking about?

In fact, Ricki, you're deeply ignorant on this topic and you're talking shit. And stupid shit at that. That's par for your course.

How about Morgan Stanley do you think they don't know what they're talking about? See second hit here:

http://www.google.ca/search?hl=en&q=in...on%22&meta=

NOW will you stop trying to challenge my knowledge with your ignorance?

[August1991]

I'm going to quote this exchange at length, Figleaf, because it contains a misunderstanding that is sadly far too common.

He didn't take it. He destroyed it.

Destroyed as in earthquake, hurricane destroyed? Huh?

I'm sorry you're not familiar with the terminology of capital markets.

Let's be plain. If you buy a house at $200,000 and then over time, you watch as prices on your street rise to $300,000 only to fall back to $290,000, did you lose 10,000?

Yes.

If you lost, then who gained?

No-one, hence 'destroyed'.

No real capital was "destroyed" in this decision. No building collapsed, and no city was flooded. Canada woke up Wednesday with just as much as it had before. The only way to destroy financial capital is to burn stocks and bonds and then you'd just be burning paper or deleting a computer file.

The stock market is a zero-sum game so one person's loss is someone else's gain. The net benefits to society of stock market transactions are subtle and I don't see any loss (or destruction, to use your term) in this decision.

Don't forget that for everyone who sells their income trust at a lower price, someone else is going to buy it at a lower price.

And housing is an imperfectly comparable example. Stock market investments are more liquid, and they are often bought and used as security for margin.

Irrelevant.

How so?

I don't understand how liquidity matters here. As to security, a house strikes me as a better guarantee than an energy income trust.

Whether we are talking about a fall in housing prices or a fall in a financial market, the principle is the same.

----

Managers are supposed to maximize "shareholders' value" and I think this is where Figleaf is getting the term "wealth destruction". Managers can certainly destroy the value of a company by making bad decisions but that's not what happened here. If anything, Harper arguably increased the value of the Canadian economy.

Harper changed the rules of the game and in doing so, some players benefitted and others lost. The net loss to society is the now useless expertise Bay Street lawyers once had in creating Income Trusts - many might argue that that's a net plus however.

[Ricki Bobbi]

All of which use the term in the fashion I used it. Face facts, it's a common term.

How about Morgan Stanley do you think they don't know what they're talking about? See second hit here:

http://www.google.ca/search?hl=en&q=in...on%22&meta=

NOW will you stop trying to challenge my knowledge with your ignorance?

Common term ... maybe. Common term in the investment industry? No.

The Morgan Stanley link is a quote from an article in Korea's top English language business newspaper.

If that is the best you can do it's pretty sad.

NOW will you quit being so dramatic and just recognize I called you on your bafflegab.

Three attempts at 'proving' your expertise only go to show how lacking your 'expertise' really is.

[Figleaf]

All of which use the term in the fashion I used it. Face facts, it's a common term.

How about Morgan Stanley do you think they don't know what they're talking about? See second hit here:

http://www.google.ca/search?hl=en&q=in...on%22&meta=

NOW will you stop trying to challenge my knowledge with your ignorance?

Common term ... maybe. Common term in the investment industry? No.

What do you think you know about it?

The Morgan Stanley link is a quote from an article in Korea's top English language business newspaper.

So, you don't believe Morgan Stanley knows what it's talking about? Riiiiight.

And Kevin O'Leary, billionaire investor and commentator on ROBTV just made it up too, I suppose.

If that is the best you can do it's pretty sad.

It the best I need to do. My point is proven and I have no further need to indulge your pathetic foolishness.

[Ricki Bobbi]

So, you don't believe Morgan Stanley knows what it's talking about?

It the best I need to do. My point is proven and I have no further need to indulge your pathetic foolishness.

Morgan Stanley didn't edit the non-standard English of the original story.

Pathetic foolishness???

I think you *destroyed* your own credibility with your attempts at defending your *knowledge*.

[Figleaf]

No real capital was "destroyed" in this decision. No building collapsed, and no city was flooded.

Okaaaay. What basis do you have for your distinction between 'real' and 'unreal'? You can sell income trust units for 'real' money. You can use them as security for loans. That seems to have at least a valuable reality to it. One that you wouldn't want to lose.

Canada woke up Wednesday with just as much as it had before.

Sure, except for the people whose net worth was substantially reduced.

The only way to destroy financial capital is to burn stocks and bonds and then you'd just be burning paper or deleting a computer file.

I can't believe I'm trying to deal with people who have no idea of the concept 'destruction of wealth'!

The stock market is a zero-sum game so one person's loss is someone else's gain.

No. The derivatives market is a zero-sum game. Stocks have real value that can grow or diminish without someone else experiencing an obverse gain or loss.

Don't forget that for everyone who sells their income trust at a lower price, someone else is going to buy it at a lower price.

The value of a stock is based on the net present value of the income stream it will provide (including capital appreciation/loss and dividends). This is a real (though potentially changing) value. The people who bought them on October 30 bought on the expectation of a certain income expectation. The price on Nov. 2 was based on a lower income expectation. August, do you believe that the study of Finance is based on real knowledge, or is it just made up?

[Argus]

This is the stupidest move an economist can make. But then Harpo is no economist.

Hmmm, actually he IS an economist.

He's got a master's degree in economics, but he never worked as an economist.

Do YOU have a masters in economics?

Look, even I, who never paid a lot of attention to income trusts, who was not invested in income trusts, knew from cursury attention paid to the business news, that something had to be done.

Exactly. A trained economist would surely have realized that many months ago and if he were honest would not have promised to leave them alone.

Economists are good at forecasting human behaviour? I suppose if you really put your mind to it you would consider the possibilty that giant corporations would try to get in on this tax shelter, but apparently neither the Tories nor Liberals did.

An intelligent economist would also have realized that a precipitous about-face would burn a lot of people and would have considered grandfathering existing trusts to prevent slaughter in the markets.

I don't think an economist is generally trained in how to avoid market fluctuations. In fact, I would think an economist, looking to the larger picture would consider what happened last week little more than an insignificant market adjustment without any real affect on the economy.

People can rail against the Tories, but it was their own fault.

Typical. Blame the victims.

I've lost on the market before. And, in fact, a few of the mutual funds I hold were invested in Telus and the Tar Sands Trust. But the worst was only 11% tar sands, 5% Telus, and while that fund was down for the week, it was only a tiny fallback, something like 1%, and that fund is up about 6% over the last three months so - I haven't really lost anything. My other funds made money too. So I'm not unhappy. Clearly you had rather more tied up in trusts.

What you shouldn't do is ever, EVER trust a tory.

I don't think this was a deliberate lie. This was a promise which, due to circumstances, they couldn't keep. On the other hand, It's hard to reconcile the Liberals hanging an entire campaign on fighting against wage and price controls, then implimenting them within months, bringing down a government and hanging an entire campaign against a gas tax, then implimenting a larger one within months, hanging an entire campaign against the GST, then embracing it.

Sure, vote Liberal. THEY'LL never break campaign promises.

[Figleaf]

So, you don't believe Morgan Stanley knows what it's talking about?

It the best I need to do. My point is proven and I have no further need to indulge your pathetic foolishness.

Morgan Stanley didn't edit the non-standard English of the original story.

Pathetic foolishness???

I think you *destroyed* your own credibility with your attempts at defending your *knowledge*.

Okay, I've given you dozens of citations for the use of the concept of 'destruction of wealth'. I've refered you to it's use by financial experts. I regard my point as proven and your ignorance as thoroughly demonstrated. I'm done indulging your stupid prevarications.

(BTW, you said any time, any where. I'm waiting.)

[Figleaf]

Do YOU have a masters in economics?

Before I answer, please explain how that is relevant to the fact that Harper has never worked as an economist.

Economists are good at forecasting human behaviour?

Actually, yes. But what is actually relevant here is that they should be able to extrapolate the effect of economic policies on marketplaces. Either Harper is a lameass economist, or he's one who doesn't mind lying to the public to get elected.

An intelligent economist would also have realized that a precipitous about-face would burn a lot of people and would have considered grandfathering existing trusts to prevent slaughter in the markets.

I don't think an economist is generally trained in how to avoid market fluctuations.

Hilarious. It seems like you don't know much about what economics is about.

In fact, I would think an economist, looking to the larger picture would consider what happened last week little more than an insignificant market adjustment without any real affect on the economy.

Even more hilarious. The whole premise of the policy change was because of the presumed effect on the economy that was occuring due to investment trusts. Presumably their policy was all about achieving an economic outcome.

What you shouldn't do is ever, EVER trust a tory.

I don't think this was a deliberate lie. This was a promise which, due to circumstances, they couldn't keep.

What is becoming apparent on this thread is that tory supporters are willing to swallow virtually any crap the tory government dishes out. It does little for your credibility.

[Ricki Bobbi]

Okay, I've given you dozens of citations for the use of the concept of 'destruction of wealth'. I've refered you to it's use by financial experts. I regard my point as proven and your ignorance as thoroughly demonstrated. I'm done indulging your stupid prevarications.

(BTW, you said any time, any where. I'm waiting.)

Your dozens of sources were weak and not from financial industry sources. The Hindu Times online? A poetry blog?

I'm not surprised that you'd want to resort to violence, given your deficiencies in discourse. or admitting your lack of knowledge about the investment industry...