Wednesday, November 01, 2006


The income trust has been Canada's great contribution to the world of corporate finance and taxation: monthly distributions of cash flows to unit holders have fattened many an investment portfolio and cut many a corporate tax bill.

No wonder why every corporation that could become an income trust wanted to.

But when BCE did, the party was over, and now Jim Flaherty has to play killjoy:

Finance Minister Jim Flaherty announced late Tuesday that the government will impose a tax on income trust distributions, a move expected to upset markets and halt conversion plans by two of Canada’s biggest corporations.

The tax will be introduced in two phases. Distributions from existing trusts will not face charges until 2011, giving them four years to adjust to the change.

But distributions from new trusts would be taxed beginning in 2007. This is key as two of Canada’s biggest corporations, Telus Corp. and BCE Inc. announced this fall they would convert their multibillion-dollar operations into tax-friendly trusts.


In a hastily-called news conference, Mr. Flaherty said he was forced to act due to the "growing trend of corporate tax avoidance" — an estimated $70-billion in new trusts coming to market this year alone.

"We were faced with a situation where Canada was moving to an income trust economy. Is that a good thing for Canada? No," he said.

"If corporations don’t pay their share of taxes, this tax burden will shift onto the shoulders of hardworking individuals and families. This is simply not fair."

This policy change should pass with little difficulty. I can't imagine any of the opposition parties wanting to cast themselves as defenders of Bay Street tax avoiders, not even the Liberals.

Source: National Post


Joanne (True Blue) said...

And by throwing a few bones to seniors Flaherty innoculated himeself against that predictable tirade from the opposition.

I can't imagine Jack Layton being too upset about big corporations having to pay more taxes.

Kitchener Conservative said...

Let's face it who benefits the most from income trusts, John and Jane Doe (regular investor NOT!) or the big rich investor that basically owns the company anyways.

Think about it, instead of the corporation paying taxes and then the shareholders paying taxes, income trusts move the money to the investors who pay the taxes, no double dipping of taxes.

To me it's been something that is really advantagous to rich people and corporations.

I'm glad Flaherty offset it with income splitting for seniors.