Conservatives Plans News Tax on Trusts

Higgly · November 1, 2006

As the owners then ultimately the shareholders bare the burden, of course. However, under income trusts, the overall tax burden is considerably lower than if the corporation paid the taxes itself. It was already costing the feds a billion dollars. That would have continued to go up. They had to do something about it.
Their promise regarding income trusts was for seniors' retirement funds, not for the likes of BCE. That is why they also added in tax savings for seniors while taking away the tax immunity income trusts conferred on large corporations.

The tax savings for seniors is a pittance compared to the income many of them have been generating from income trusts.

If they had to do something, then their campaign promise obliges them to at the very least to signal a warning. This was sandbagging, pure and simple.

There is also the question of whether this was the right thing to do. The idea of income trusts in the first place was to give small companies a leg up. They appear to be throwing the baby out with the bath water.

MightyAC · November 1, 2006

I think the original Liberal and now Conservative decision makes sense. The problem is that Captain Accountability, Stephen Harper, flat out promised that he would not do this. He even bashed the Libs for their plan to do the exact same thing. People made financial decisions based, in part, on those assurances and those people will now potentially loose money. Hopefully most investors do nothing in the short term and minimize the damage done.

To run on an accountability platform and then deliver a lie of this magnitude is inexcusable.

Harper must be betting that the average voter has a memory akin to that of a goldfish. As a result his government will be a lame duck for awhile. He will not want to go to the polls anytime soon so that will give an immense power boost to the opposition. I wonder how Layton will approach the Green meeting now..

Higgly · November 1, 2006

People made financial decisions based, in part, on those assurances and those people will now potentially loose money....
...Harper must be betting that the average voter has a memory akin to that of a goldfish....

Not only investment decisions, but voting decisions. Hard to believe that, with an election right around the corner, the voter will have trouble remembering.

M.Dancer · November 1, 2006

http://www.ctv.ca/servlet/ArticleNews/stor...?hub=TopStories
Didn't they attack Liberals for planning the same thing?

I fully expect those who reaped scorn on Goodale for causing the share valuews to evaporate will oon be taking aim at Flaherty...

.....unless of course it was really a partisan issue.......

White Doors · November 1, 2006

As the owners then ultimately the shareholders bare the burden, of course. However, under income trusts, the overall tax burden is considerably lower than if the corporation paid the taxes itself. It was already costing the feds a billion dollars. That would have continued to go up. They had to do something about it.
Their promise regarding income trusts was for seniors' retirement funds, not for the likes of BCE. That is why they also added in tax savings for seniors while taking away the tax immunity income trusts conferred on large corporations.

The tax savings for seniors is a pittance compared to the income many of them have been generating from income trusts.

If they had to do something, then their campaign promise obliges them to at the very least to signal a warning. This was sandbagging, pure and simple.

There is also the question of whether this was the right thing to do. The idea of income trusts in the first place was to give small companies a leg up. They appear to be throwing the baby out with the bath water.

Signal a warning? Are you serious? You have no idea how the market's work do you?

SHould they have sent the same 'warning' that Scott Brison sent to Bay Street last year and almost get charged with insider trading?

Higgly · November 1, 2006

The income trust index is down 10% right now after opening down about 15%. The financial, energy and dividend indexes are down as well. I think it might go beyond partisanship. If you are a senior who has been counting on the income these things produce, you are watching your living standard drop.

Higgly · November 1, 2006

Signal a warning? Are you serious? You have no idea how the market's work do you?
SHould they have sent the same 'warning' that Scott Brison sent to Bay Street last year and almost get charged with insider trading?

Well, no. You say something like "We are investigating the matter and are expecting to come to a decision over the next few months...". What Flaherty did instead (on the occasion of Bell Canada announcing it would go to a trust structure) was to say "No comment".

So yes. I am serious. And I appear to know more about how markets work than you do, newbie.

scribblet · November 1, 2006

I do believe existing trusts should have been grandfathered for more than 4 years, only new trusts subject to the taxation. However, I don't think it will hurt the CPC; how many people actually have income trusts, relatively few I would guess; most people will see it as nasty corporations getting theirs.

White Doors · November 1, 2006

Signal a warning? Are you serious? You have no idea how the market's work do you?
SHould they have sent the same 'warning' that Scott Brison sent to Bay Street last year and almost get charged with insider trading?

Well, no. You say something like "We are investigating the matter and are expecting to come to a decision over the next few months...". What Flaherty did instead (on the occasion of Bell Canada announcing it would go to a trust structure) was to say "No comment".

So yes. I am serious. And I appear to know more about how markets work than you do, newbie.

So the markets will be sluggish for 4 months. Market's hate uncertainty. You obviously have no idea what you are talking about.

And newbie? I guess I should bow down to you that has been here for a whole 45 days? Sorry your lordship.

my apologies.

Higgly · November 1, 2006

... how many people actually have income trusts....

There were enough to make the Liberals back down when they tried the same stunt.

Higgly · November 1, 2006

my apologies.

You made assumptions about somebody you don't know. Stuff your apology.

MightyAC · November 1, 2006

I do believe existing trusts should have been grandfathered for more than 4 years, only new trusts subject to the taxation. However, I don't think it will hurt the CPC; how many people actually have income trusts, relatively few I would guess; most people will see it as nasty corporations getting theirs.

Retirees and pension plans are the largest purchasers of income trusts. Proportionally old people vote in the greatest numbers. We are an aging country.

Earlier I said that Harper is betting the average voter has the memory of a goldfish... When it comes to seniors they may forget they told you the same story 5 minutes ago but they don't forget when someone screws with their pension income.

I'm guessing this will hurt the CPC and as a result they will throw a bone to the seniors...maybe full pension splitting.

normanchateau · November 1, 2006

Kudos to the Conservatives. A little more than a year ago, Finance Minister Ralph Goodale raised the spectre of taxing income trusts partially on the grounds that the trusts distribute their profits to unit holders rather than stimulating the economy and international competition by re-investing in productivity-enhancing machinery, equipment and technology.

Here's what Finance Minister Jim Flaherty said yesterday in breaking the Conservative campaign pledge : "We're concerned about competitiveness and productivity. Therefore we're acting now."

It took a while for the Conservatives to realize that this was in the best interests of the Canadian economy and Canadian business. Harper should be applauded for this flipflop.

As I write this, the TSX is down by 208 points. It will recover. View this as a buying opportunity for common shares in many Canadian companies even though the game is over for trust units.

M.Dancer · November 1, 2006

... how many people actually have income trusts....

There were enough to make the Liberals back down when they tried the same stunt.

Unlike the majority of equities, income trusts are a retail product favoured by investors looking more for regular revenue than a rising share price.

I think the conservatives have vindicated poor ralph....and I think they think that either becasue ralph ttried this they will be insulated from the heat or they think they are months if not years away from an election.

Higgly · November 1, 2006

It took a while for the Conservatives to realize that this was in the best interests of the Canadian economy and Canadian business. Harper should be applauded for this flipflop.
As I write this, the TSX is down by 208 points. It will recover. View this as a buying opportunity for common shares in many Canadian companies even though the game is over for trust units.

You can put a pretty hat on a pig, but at the end of the day it is still a pig. Here we have a party who ran on a platform of accountability, made a campaign promise to leave income trusts alone, and then sandbagged the voters who believed them, without so much as a whisper of warning.

What kind of buying opportunity do you have when you have lost your shirt?

Jerry J. Fortin · November 1, 2006

TSE down 300 points earlier but regained 85 points since news broke about the trust fund change...down 219 now.

normanchateau · November 1, 2006

... how many people actually have income trusts....

There were enough to make the Liberals back down when they tried the same stunt.

I think the conservatives have vindicated poor ralph....and I think they think that either becasue ralph ttried this they will be insulated from the heat or they think they are months if not years away from an election.

Yes, Ralph Goodale must be pleased with himself today. And maybe Jim Flaherty will turn out to be a better finance minister than I ever imagined and maybe the Conservatives did this...and here's a novel thought...because they thought it was in the best interests of the Canadian economy even if it would lose them votes among their older constituents.

If I am not mistaken, this is not the first time that Jim Flaherty has not supported a Conservative campaign promise. Didn't Harper promise last December or January to eliminate the capital gains tax if that money was re-invested within a short time period? That doesn't seem to be on Flaherty's agenda.

Higgly · November 1, 2006

The trust index is down 10%. That's where the real blood is being spilled. I wonder if the Americans have woken up to this yet?

August1991 · November 1, 2006

Dropping this like a bomb out of the blue after having promised not to do so, is a stab in the back not only to the corporate world but to an entire class of investors. The Globe and Mail describes this as breaking a major campaign promise. Nice timing guys.

The fact that it appeared as a "bomb" is evidence that Flaherty got the announcement of it right. Goodale never got that right.

It's also obvious that the impending BCE trust forced the Conservatives' hand. They had to do something.

I would prefer to abolish corporate taxes because such taxes don't work anymore and in avoiding them, corporations get involved in all kinds of foolishness - such as income trusts.

This is only a temporary solution. Flaherty has four years in which to change the corporate tax structure. (Assuming he's in power in 2011.)

In the short run, the big losers are the Bay Street lawyers who were planning to create the income trusts. They've just lost some fat commissions.

I don't like the tax relief accorded to senior citizens. They are already among the wealthiest group in our society. They pay less taxes, receive pension transfers and benefit enormously from our health system. But seniors also vote, and they tend to vote Tory.

normanchateau · November 1, 2006

It took a while for the Conservatives to realize that this was in the best interests of the Canadian economy and Canadian business. Harper should be applauded for this flipflop.
As I write this, the TSX is down by 208 points. It will recover. View this as a buying opportunity for common shares in many Canadian companies even though the game is over for trust units.

What kind of buying opportunity do you have when you have lost your shirt?

Fortunately, I sold all my trust units about a year ago because I believed that (1) the Liberals would be re-elected and (2) Goodale would probably tax the trusts after the Liberals were re-elected. Must say I never imagined Flaherty would do this after Goodale backed off.

scribblet · November 1, 2006

I applaud Harper for taking a chance on this and the optics, as the income tax area was starting to create a problem and needed to be done for Canada's future economic health. Even when he does the right thing, he must know there would be howls from the liberals no matter what.

The gutless Liberals should have addressed the issue and acted on it about 10 years ago when it first showed its head, maybe kept it to the real estate area, then the problem wouldn't be here today.

Higgly · November 1, 2006

I applaud Harper for taking a chance on this and the optics, as the income tax area was starting to create a problem and needed to be done for Canada's future economic health. Even when he does the right thing, he must know there would be howls from the liberals no matter what.
The gutless Liberals should have addressed the issue and acted on it about 10 years ago when it first showed its head, maybe kept it to the real estate area, then the problem wouldn't be here today.

I'd say your applause for Harper has more to do with your use of the word 'gutless' to describe the Liberals than it does with your ideas on principled government.

geoffrey · November 1, 2006

Signal a warning? Are you serious? You have no idea how the market's work do you?
SHould they have sent the same 'warning' that Scott Brison sent to Bay Street last year and almost get charged with insider trading?

Well, no. You say something like "We are investigating the matter and are expecting to come to a decision over the next few months...". What Flaherty did instead (on the occasion of Bell Canada announcing it would go to a trust structure) was to say "No comment".

So yes. I am serious. And I appear to know more about how markets work than you do, newbie.

You do Higgly, this was poorly released. It's even worse how the Finance department tried to skew the effects of this in their release. It's a direct tax on the one thing left that was encouraging Canadians to save their money.

... how many people actually have income trusts....

There were enough to make the Liberals back down when they tried the same stunt.

Most people do. Have a pension? It almost surely has trust units. Have an RRSP? Mutual funds in it? Trust units. You likely own more income trusts then you even care to know. Everyone lost huge.

geoffrey · November 1, 2006

"Any amount that becomes payable by a SIFT trust to a beneficiary of the trust, and that the trust is, as a result of these measures, prevented from deducting in computing its income, will be taxed in the hands of the beneficiary (the unitholder) as though it were a taxable dividend from a taxable Canadian corporation."
Geoffrey, do you have a link to that quote to provide context?

My apologies for not catching this sooner. I got this from the Finance departments release... it's near the bottom of the page: http://www.fin.gc.ca/news06/06-061e.html

Hopefully no one believes that bullshit. It is so far against the best interests of Canadians it's not even funny.
I don't see it that way.

Care to explain why you don't, or are we to just take your word as gospel?

It's not about 'corporate tax avoidance'.
Seems that way to me.

Your wrong there. You lower and reduce the complexity of taxation to reduce avoidance. This increased the amount of tax, and raised the complexity, so there will be more avoidance. Read up on Ireland and how they reduced taxation, grew their economy and increase revenues all at the same time.

I'll say it one final time, corporations can't pay tax...
Sure they can.

You really don't get it.

their shareholders bare the burden and I hope you all have investments... you just got a tax hike, not any company.

As the owners then ultimately the shareholders bare the burden, of course. However, under income trusts, the overall tax burden is considerably lower than if the corporation paid the taxes itself. It was already costing the feds a billion dollars. That would have continued to go up. They had to do something about it.

Their promise regarding income trusts was for seniors' retirement funds, not for the likes of BCE. That is why they also added in tax savings for seniors while taking away the tax immunity income trusts conferred on large corporations.

Wow, seniors got $200/year in tax cuts. You realise they lose $315 dollars per $1000 in income trust revenue now? Great deal hey. This was a tax hike. The government has more money now, we have less. Our taxes went up, and your ok with that.

August1991 · November 1, 2006

Wow, seniors got $200/year in tax cuts. You realise they lose $315 dollars per $1000 in income trust revenue now? Great deal hey. This was a tax hike. The government has more money now, we have less. Our taxes went up, and your ok with that.

Geoffrey, that's not how your Finance links paints the picture.

By 2011-12, the pension splitting will mean a $820 million tax cut, the increased age credit a $400 million tax cut and 0.5% corporate reduction a $725 million cut.

These are offset by $400 million in increased corporate tax collections.

On balance, it's a tax cut - but largely for seniors.