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BCE and Telus battered by trust worries

CATHERINE MCLEAN

Globe and Mail Update

Latest comment posted at 8:18 AM EST 02/11/06

Stocks hammered by a double digit fall after government changes stance on income trust taxation ...Read the full article

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  1. J M from Belleville Ontario, Canada writes: Well HELLO??? Just as last year when the Liberals started this show and backed off, these guys better take a very close look at the ramifications of this situation. As with many retirees, we have been told again and again by the Conservatives that the trusts will not be touched and resultingly have invested billions of our hard earned retirement dollars in these vehicles in order to maintain a closer to pre-retirement living style as ccompared to options of the low interest GIC's, savings accounts et al. We are not going to take another kick in the teeth from these guys. Contrary to your article, very few seniors will forget this latest move at the next election. So Mr Harper and your gang of thugs, relish your perks while you can as they surely will be short lived!!
  2. Not the Alliance from In my opinion, the Harper Gov't is Incompetent, Canada writes: As long as it's a level playing field between Telus and Bell there's really no problem. When Telus converted, it was inevitable that Bell would. Flaherty learned this the hard way (post election, and post ignorant promise NOT to touch the issue). If one bank converted, they all would, etc, etc. The trust conversion was a competitive response to Telus, NOT a key component in Bell's restructuring (i.e. away from being a holding company).
  3. Geoffrey L from Hamilton, Canada writes: As stated in previous postings by people, it appears that BCE strategically sabotaged the income trust market for their own ends: prevent Telus from becoming a trust, get a corporate tax cut, prevent themselves from becoming an income trust. They had no intention of converting because they did not arrange their financial affairs in such a way for it to be an efficient move. They wanted to the government to do what they did. Thank you BCE. I am canceling all Bell services.
  4. Midtown Bob from Toronto, Canada writes: Analyst Bob now downgrades BCE from BUY to HOLD. Way to go reform job Jim.
  5. john cheng from Toronto, Canada writes: The Conservative is doing the right thing - to protect the coutry's tax system.
  6. Not the Alliance from In my opinion, the Harper Gov't is Incompetent, Canada writes: Geoffrey Post 3 - You can't blame BCE for trying to convert one of their units to a trust. It's a competitive marketplace, and when Telus converted, Bell really had no choice. Why would you give up that competitive advantage? This decision was inevitable. If not now, then when the first of the big banks tried to convert. Not BCE's fault.
  7. Jimmy K from Toronto, Canada writes: Telus and BCE were both advised by a bunch of idiots if they truly believed they could jump in on the income trust party without causing such a mess that the entire thing shuts down. If we allowed this, then next up would be the banks. IMAGINE! The biggest banks in this country, income trusts. Scotia would sell it's global holdings, Royal and TD would sell their American holdings in Centura, Banknorth, and Waterhouse, BMO would sell Harris, and they could all happily plod along for the next 20 years as Canadian domestic useless banks, happily gouging the Canadian consumer, never growing, and paying steady cash to shareholders until we finally drop foreign ownership restrictions and big foreign banks who actually invested their money to grow come in and take over. Hello branchplant economy. This income trust thing was a disaster from start to end. Smart investors sold their BCE and Telus shares after the market drove up BCE and Telus due to the income trust premium, only naive investors truly believed the party could last forever. Luckily, after this bubble burst, they have someone to blame, the government and PM Harper, although in all honestly they should be blaming themselves for their own stupidity.
  8. Chris Li from Toronto, Canada writes: #6 is right. BCE is not at fault for following Telus's move to convert. It's not Telus's fault either, though; as previously said, it is a competitve marketplace, and to have an upper edge over other companies, it makes sense to take advantage of this existing loophole and convert to a trust. Closing the loophole is a very good move by Flaherty, but by no means does it make this announcement a magic cure for the whole issue with tax leakages. This is, still, only a good first step.
  9. Quentin Brayley-Berger from Toronto, Canada writes: I think this is a good sign. A reasonably intelligent individual can uncover the loop holes in the Canadian Income tax system. Granted, this may be more a reactive than proactive change for the Canadian Government, but it's a change nonetheless.

    Noam Chomsky compares Government as the shadow of private enterprise. I believed this to be the case, until I heard this announcement.
  10. b mac from Canada writes: Great day for Telus and BCE employees. These companies can get their growth strategies back on track and turn themselves into bigger and stronger Canadian companies. Three cheers for Mr Flaherty.
  11. Joe Canada from Brampton, Canada writes: They did the right thing? tell that to the people that are retired and have the savings in income trusts. most trust are now down 20% or more. that is 20% of someones life savings. they could have just said no more income trusts. and lets see what it has done to the market eh?

    Investors from other countries are pulling out of trusts and the Cadian dollar is down almost a full cent in the first hour of trading. the TSX opened down 315 points. so how many other people are going backrupt or losing a lot of money because of this? I have not even touched the fact that people form other countries that were going to invest in Canada will no longer do that because we will be see as unstable.

    Anyone that see this as a good thing defently dones not have money in income trusts or is so stupid to beleive that the mutual funds, RRSP's, RESP's are not invested in Canada's income trusts. By the way if you have RRSP' RESP's or mutual funds you should call and see how much you lost today.

    For most people good bye earily retirment.

    So for the people that think that this is a good move and it will not effect them think of where your money is and then decide if this is a good thing.
  12. Ren Stimpy from Calgary, Canada writes: The key point here made by #6 is

    'It's a competitive marketplace, and when Telus converted, Bell really had no choice. Why would you give up that competitive advantage?'

    Why was it such a competitive advantage? Because they would pay much lower corporate taxes. And this means less taxes paid to the feds. The Cons are doing this to protect the country's finances as a whole, compared with the trusts concern for their unit holders.

    #1 - such it up buttercup. You should have mitigated your risk by spreading out your investments across different sectors/investment vehicles. This had to be done to prevent the banks and other large corporations from converting and messing up the tax books.
  13. Frank Grossman from Canada writes: Interesting that some consider saying one thing and then doing the other when dealing with financial markets -- effectively lying in order to treat all in an even-handed way -- is the criteria for incompetence. Let's consider earlier examples.

    Exhibit one is Trudeau's 'promise' not to impose wage and price controls during the 1974 federal election campaign, and subsequent 'volte face' with the establishment of the far-reaching Anti-Inflation Board. And then there's the Rae government's more recent 'promise' to implement a public auto insurance scheme in Ontario. Both unquestionably nose-stretchers.

    But if this is the basis for 'incompetence' then incompetence -- like ignorance -- is more wide spread than one might hope.
  14. John McMortimer-Boyles from Edmonton, Canada writes: The winners in all this are the people who owned shares in companies like Telus before they announced plans to convert to an income trust, then sold shortly afterwards. Anyone with income trusts in their portfolio, including yours truly, took a hit when the markets opened this morning. Still, I think Flaherty made one of two right moves. The first was to tax income trusts. The second was cut taxes on dividends.
  15. Zaphod Beeblebrox from Canada writes: What next? A middle of the night announcement that all foreign investments will be seized! The handling of this was so irresponsible it makes me sick! As stated by Poster#1, many people have mistakenly shifted capital to investment trusts AFTER being assured that no tax changes were in the offing. Dropping a bombshell announcement like this is absolutely incompetent. Election? Bring it on!!
  16. alan brown from TORONTO, writes: What really burns me is as follows .... a) The Tory's PROMISED before election that they would not touch Income Trusts and they had the gall to complain when the Liberals had intended to do the same. b) Canada has a very very large budget surplus due to over taxing Canadians and now they have added another tax c) Our corporations have to compete with American companies and this will decrease our company competitiveness d) Income trusts distributions put restrictions on company spending which increased efficiency and decreased overspending on acquisitions and expansion Finally, I promise today that after I count my losses from today's slaughter of Income Trust investments, I will never ever vote for a Conservative again.
  17. J Luft from Calgary, Canada writes: The good thing is that Flaherty didn't alert all his friends prior to the announcement.
  18. Give Your Head A Shake from Southern Ontario, Canada writes: Number 7, I agree 100% with everything you said, except taht I would replace the word stupidity with greed. Anyone foolish enough to invest almost everything they have in such a vehicle is courting disaster. So here's a thought, if you feel mistreated by your advisor, sue. Otherwise, take your medicine like the rest of us. The bottom line is that we cannot afford to mortgage our grandchildrens' financial futures, to maintain a certain lifestyle, eventually somebody has to pay the bill. Capiche?
  19. F smith from Canada writes: This was so inevitable. As a small business owner I cannot imagine having to pay 50% of my profit to unitholders. We could never grow. This is a great move for the long-term health of the canadian market. I hope that we continue to grow as an economy and if something wasen't done about these trusts we'd have nothing but an economy full of companies that don't have the cash to grow. As for poster #15, Mr. Beeblebrox, there is an old saying. Don't put all your eggs in one basket! If you were foolish enough to allow a heavy weighting of trusts in your investment account you deserve to be stung today you were clearly motivated by greed and the double digit trust returns when you bought in. You have no one to blame but yourself
  20. Richard Hawrelak from Sarnia, Canada writes: I've never seen such incompetence in all my life, including Joe Who's announcement to raise gasoline taxes by 16 cents/gal way back when. I voted Conservative last election and I am paying for it personally, big time. So long Steevie. Hope not to see you again. BTW, I'm a Westerner, so this leaves me with the Greenies.
  21. Reality Check from GTA, Canada writes: #11 & others - The most basic premise for any retiree is to concentrate on fixed interest investments where their principal is protected. If they chose otherwise, then they only have themselves to blame.
  22. Bob Chan from GTA, Canada writes: Do Trusts really costs the government more money? If so, why is that?

    Trusts must distribute all profits out to their unit holders or they WILL get taxed. If all profits are distributed to the unit holders they get taxed. Why is that a loss to the governemnt?

    Well, what about Pension plans and RRSP holding Trust units - those distributions are not taxed.

    No true - Pension plans and RRSP are tax deferral plans not tax shelters. So when the money comes out of those plans they get taxed. This is by design to encourage Canadians to save for their retirements.

    So this tax leakage can only come about because of double taxation of corporate profits compared to individual income taxes. The taxes paid on profits by corporations is higher than if those profits were held by individuals. Income Trusts takes advantage of this fact.

    Well, Corporations should paid higher taxes than individuals you say.

    Corporations are legal entities held by individuals. Why should I paid higher taxes if I hold my business in a Corporation vs. holding it as an individual?

    The government is crying about the loss of their double taxation benefits and they want that back. Should we be happy about this?
  23. Mike H from Grande Prairie, AB, Canada writes: #11, The biggest rule of investing is diversification. That is why people purchase mutual funds. To get diversification. IE) When one sector does poorly, the other sectors you are invested that aren't doing as poorly help limit your losses by spreading the risk around. Approximately 90% of a portfolio's return is from asset allocation as opposed to the actual investments held. Quite frankly, if you had 100% of your investments in income trusts, you deserve to suffer a big loss. Teach you to invest smarter in the future. Oh, one other thing, you don't actually suffer a loss until you sell. The markets are down today...meh...maybe they will be back up tomorrow. Who really knows.
  24. daryl M from calgary, Canada writes: The government wqs right to do this. It was a growing trend for companies to avoid tax, and would have shifted the tax burden from corporations to individuals.

    #21 is right. Anyone retired or nearing retirement should be in guaranteed investments. If you play the market you are rolling dice. Read any investment prospectus...under investment risks you will find changes to tax structures. Didn't like GIC rates..oh well..you got greedy and got dinged.
  25. Jonnie BE GOOD from St Kitts, Canada writes: Part of the problem was that the money from overseas were getting payouts and not taxed - tne second problem that Income Trusts are not a formula for growth and the LIBERALS let it get out of control - So we will have a painful adjustment --- the government can now move and compelte further revision to the TAX structure in CANADA -
  26. Steve D from St. John's, Canada writes: BCE and Telus can go back to concentrating on being Telecom companies which is in the long run the most productive thing they can do for their shareholders. At least until the next scam opportunity comes along.
  27. RC Lunan from Harwood ON., Canada writes: What are they trying to do destroy capitalism. Somebody is .
  28. Chris P from Calgary, Canada writes: #2 - interesting point you make - I'm left wondering however, perhaps Bell knew that by trying to become a trust, they would prevent Telus from becoming one...
  29. Michael Kolin from Toronto, Canada writes: the government lied and commited fraud and stole from ordinary Canadians who invested in income trusts directly or indirectly. We were conned and the Conservatives will pay for cheating me out of my money. The government hurt lawabiding citizens.
    All the money was going to be taxed eventually anyway and the government is running a HUGE surplus.
    Dr. Mike
  30. Not the Alliance from In my opinion, the Harper Gov't is Incompetent, Canada writes: Chris Post 28 - I agree, what you say about Bell's motives IS possible. Either way, Bell HAD to move. If they didn't and the rules changed then Telus would have had a clear tax advantage.
  31. Jim Terrets from Vancouver, writes: Good -- these companies deserve a beatdown. Instead of focusing on improving their productivity, their innovation through R&D, and their marketing, the managers of Telus and BCE opted for a shaky tax dodge. This is what you get when you chose flim flammery over substance. The shareholders should fire the senior managers of both outfits for their foolishness and lack of concern for the long term health of their businesses. A patented 'Jim Terrets thumbs up' to the stock market for punishing the stocks of Telus and BCE.
  32. R Hopkins from Edmonton, Canada writes: J Luft #17
    Hey! I actually agree with you about something.
    Right on.
  33. anson lake from toronto, Canada writes: The previous liberal gouvernment had the belated good sense not to tax income trusts and the incoming tories appeared to have the wisdom to follow suite... and based on these premises many investors believed the vehicle was roadworthy so to speak.
    Along comes mike and the mechanics and the wheels fall off. The real tragety here is that 20 billion dollars was removed from the pockets of ordinary canadian investors and I'm willing to believe that a goodly percentage were retired...living off their investments and who do not have the means of replacing lost capital.
    There is too much focus on bell and telus in this issue...if the trust vehicle is no good, for a variety of reasons...then why wasn't it no good 3 or 4 years ago..why do we have to come to this wholesale slaughter of investors at this late date. I am with #29, this unholy alliance of reformers and tories propped up by jack layton is starting to believe it's own propaganda and as a voter I have a long memory.
  34. T Rogers from Canada writes: Stephen who?
  35. J Law from Canada writes: It appears that big business tried to take advantage of a government thinking it was the old school wishy washy government of stay in power at all costs kind of party. Sorry to disappoint all those who would try to push their taxes on other Canadians, but this party is not of the old school. This party, it seems, will give up power to fight for the fair treatment of ALL taxpayers.
  36. greyburr f from orangeville, Canada writes: Since this is a financial item,I would expect the liberals to initiate a 'no confidence motion' as soon as possible.Having the liberal party go into a forced election supporting a zero tax base on Canadian corporations would be quite amusing.Oh wait they did support that in the last election with Canadian Steamship Lines and the Barbados tax havens.
  37. bill johnson from Quebec, Canada writes: #1 JM. Not so quick. I have lots of investments and never put a nickel in IT because they are a sham designed to build nonexistent equity on the backs of Canadian taxpayers. I had BCE and sold it cause the management team sucks. They were all set to get new Mercedes when the air came out of the balloon. Why should you or other IT investors avoid taxes that other investors pay? This is harsh, but really, it was predictable. Harper, again, proves he is a great PM.
  38. Paul who is from Vancouver, Canada writes: The Stephen Harper Conservative government was given a chance to be an honest government with integrity. People invested their hard-earned savings on the basis of the Conservatives' promise to leave the income trust sector alone. This was a MAJOR CAMPAIGN PROMISE. The Conservative government lied to the Canadian people. After this betrayal, why would honest hard working citizens feel guilty about lying to the government?
  39. Terry H from Moncton, Canada writes: Awww. Poor babies. I for one am sick and tired of these sleazebag companies using loopholes and borderline tactics to shirk their responsibilities and PAY TAXES like the rest of the people in the country. They actually should be paying a lot more in taxes percentagewise. All their profits go to feed greedy rich shareholders and board of directors who seem to admire the likes of the CEO's of Enron, Tyco, Worldcom, etc. The low end of human evolution. When corporations and banks start showing outrageously gross, far far FAR above average quarterly profits year after year, there is something wrong. They are not being curbed for price gouging, and there is no protection for consumers who have no choice but to use them. Think about it. When the retail gasoline prices are all high and the same, the oil companies post profits that make you shit your pants. When banks get rid of tellers and staff by the thousands, and they show profits that would give their CEO's wet dreams, you know you are being screwed by their rates. And insurance companies show gigantic never before seen profits, even after Katrina and Juan, you KNOW you have been bending over in front of them for years. Consumers seem to have no protection against price gouging and price setting and fixing. It is high time these companies started to pay back some of what they have been sucking out of people's and citie's pockets for years. They don't need tax breaks, they need tax raises. And if they whine about paying their fair share and threaten to leave, then say " good riddance" and bring in some people oriented and community focused companies who wont pollute the land, rape our wages for people, or gouge us on pricing, and are willing to pay taxes on their income, like everyone else.
  40. Richard Purvis from Toronto, Canada writes: Good for the Conservatives! Not only does this change in the taxation of income trusts ensure that the nation's tax system will continue to function as it should, it also gives the little guy a break and sends a message to large corporations that they have to pay their taxes just like the rest of us! Not surprisingly, the Lieberals voiced their opposition to a move that would hurt their corporate buddies...
  41. Golden Bulldog from White Canadian Rockies, Canada writes: #17 - Yes, I too finally agree with something you present. like #32.

    However, I wish you would acknowledge Stevie's big lie that he would never tax trusts which he spouted off on just before the election.

    But then to admit that one of your neocons is capable of lying may be just too much for you to swallow.
  42. Some Guy from Canada writes: In general I do not agree with this government, but I have to agree with them on this. The Liberals should have sucked it up and done this a year ago. Personally, my RRSP will be down a bit next quarter because my mutual funs will be partly invested in income trusts. So what. I have 20 years to work before I retire and this will be a blip and my income taxes would have had to go up dramatically to pay for this tax avoidance scheme. For those who put all of their retirement funds in income trusts instead of GIC's where they should have been, sell the cottage and the boat and you will be fine. You are some of those who voted again and again to increase our debt which must now be paid off. Thanks for joining me in paying it off, whoever belatetedly.
  43. Steve D from St. John's, Canada writes: Commenter 29: You wrote "the government lied and commited fraud and stole from ordinary Canadians who invested in income trusts directly or indirectly. " The situation changed and the government chose the lesser of two evils. The only upside for the Conservatives is to get well-deserved credit from right-thinking peoplefor doing the right thing, at the right time (before more people got involved), in the right way (look ma no leaks!) for the right reasons. The downside being hypocritical, self-righteous criticism from the Liberals, whose gutless approach made the situation much worse and allowed the leak recipients to insider trade, that is the real fraud.

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