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Finance Minister Jim Flaherty apologized Monday for the "hardship" his surprise income trust tax has caused, but refused to backtrack on the move despite continuing investor anger.

"I realize there's been some hardship and I'm sorry. . . ," he said yesterday after a Toronto speech, referring to the $25-billion market selloff that followed his Halloween trust tax announcement.

"But this was necessary . . . regrettably necessary, but necessary for fairness and for the sake of the Canadian economy."

His apology was primarily aimed at those investors who, because of age or income, don't qualify for the $1-billion in seniors-targeted tax relief the Conservatives announced last week to cushion the new levy's blow, officials said.

Despite this, Mr. Flaherty refused to budge on the tax, even in the face of demands for an exemption from a new Coalition of Canadian Energy Trusts that has formed in Calgary, home base for the Conservatives.

Still, Ottawa signalled it's considering ways to alleviate some of the fallout for business, including breaks for trusts that decide to convert back to corporations.

Diane Ablonczy, parliamentary secretary to the Minister of Finance, told the Calgary Herald that Ottawa is looking at "allowing trusts to reconvert to corporations without tax consequences." Mr. Flaherty later said this is a possibility but nothing has been decided yet.

The Tories broke a campaign promise by slapping a levy on trusts, which pay few or no corporate taxes.

Taxing them like corporations plugged a revenue leak and headed off an expected flurry of conversions that already included Telus Corp. and BCE Inc.

Separately, EnCana Corp. confirmed it was among the big firms planning to convert before the Flaherty crackdown.

EnCana said it had asked Ottawa for an advance tax ruling on a proposed $20-billion income trust in the summer of 2005, when it was considering spinning out more than one-third of its assets into a separate publicly traded structure.

"Everyone in the Finance Department, whoever had access to it, would have known," Randy Eresman, EnCana chief executive officer, said. "They had over a year to look at our application and understand the implications of it, actually through two governments."

While EnCana's plans may have been known to Ottawa for some time, it appears the matter did escalate recently. At a board meeting two weeks ago, EnCana's directors agreed in principle on a plan to convert the entire company into a trust, according to one person attending the session. That would have easily created the biggest trust in the country, valued at more than $40-billion, based on the energy company's current market value.

The board directed its legal and financial advisers to draft terms of the conversion, which was supposed to have been announced last week, but was shelved when Ottawa unveiled its clampdown on the sector, sources said.

The company's former CEO, Gwyn Morgan, had been opposed to the company's efforts to convert a portion of Encana's assets into a trust, and remained silent after the agreement two weeks ago to pursue a full conversion, said one person who attended the meeting.

Mr. Eresman said there was no division at the board of directors about a trust.

Mr. Morgan, who wrote an opinion piece in The Globe and Mail last week supporting Ottawa's move to slow down the rapid growth of the income-trust sector, left the board of EnCana shortly after the meeting. The firm announced his resignation the day after it took place.

The company said Mr. Morgan was stepping down from the board in accordance with a retirement plan outlined a year ago. He could not be reached for comment.

"Gwyn's no longer on the board and when he wrote the piece for The Globe, he was speaking for himself," Brian Ferguson, EnCana chief financial officer, said.

When the trust levy was announced, EnCana withdrew its application for an advance tax ruling.

Firms are already announcing plans to jettison the trust structure. CI Financial Income Fund, an investment manager, said it plans to convert back to a corporation at the end of the government's four-year grace period for existing trusts. It's the first major trust to announce plans to switch back.

The trust market has recovered some ground since last week.

The S&P/TSX capped income trust index tumbled 26.32 points, or 16 per cent, in the two trading sessions after the tax was announced. But in the past two trading days, the index has clawed back 8.31 points, or just under a third, of its losses.

John McCallum, a revenue minister in the former Liberal government, said he couldn't recall if, in the summer of 2005, he'd known that EnCana had filed a request for a tax ruling on trust plans.