"The federal government move [yesterday to tax] income trusts is likely to cause an extended period of turmoil for both the stock markets and the investment portfolios of everyone who owns trusts," The Globe's personal finance columnist Rob Carrick writes on today's front page in his article This is going to be ugly.
"Trusts are held by even the most mainstream mutual funds, so few investors are going to be spared . . . "
"Give the Conservatives credit for decisive, if cold-blooded, action . . . [But] decisive or not, yesterday's announcement is going to feel like a stab in the back to small investors, especially those who recall the Conservatives saying during the last election campaign that they would not tax trusts."
Mr. Carrick was on-line Wednesday to take your questions on his article, on the government announcement yesterday and on what is likely to happen to income trusts over the next few years.
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Your questions and Mr. Carrick's answers appear at the bottom of this page.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.
After starting his career at The Canadian Press in Toronto covering general news and business, Rob moved to CP's Ottawa bureau, where he served as senior economics writer and covered the Department of Finance. He holds a Bachelor of Arts in political science from York University, an Honours Bachelor of Journalism from Carleton and is a graduate of the Canadian Securities Course.
Mr. Carrick has written two books on on-line investing, and has a third book coming out this winter. The topic will be how to get the best deals on a variety of financial products, including mortgages, bank accounts, credit lines, mutual funds and investment advice.
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Kelly McClellan, Ottawa: What types of investments are likely to prosper as a result of the decision to tax income trust distributions? Or put another way, where are investors likely to invest as they pull their money out of income trusts?
Rob Carrick: Kelly, I think blue-chip dividend stocks are where it's at right now. Just before writing this, I took a look at what's happening today with bank stocks. It turns out they're all up nicely. Look, income from dividends can't match up to what was available from income trusts in their heyday. But dividend stocks are reliable and no one's criticizing them because they don't pay enough tax or because they hurt Canada's competitiveness. Bonds and GICs may also get a lift, but it's hard to get excited about yields of 3 to 4 per cent. Dividends aren't much higher, but at least you get preferential tax treatment.
Dale Leitch, Victoria: Do we know if any of these changes will require new legislation or can they all be effected immediately via regulation? Just wondering how political this might get and how long it will take to be put in place.
Rob Carrick: Dale, I'm a personal finance columnist and not a political reporter, but I can tell you this will get VERY political. How do I know? Because since 7:45 p.m. yesterday, I've been receiving a steady stream of e-mails from investors who are livid about what the Conservatives have done. Yes, they're mad about the paper losses and uncertainty they face, but mostly they're angry that the Tories broke their clear election promise not to introduce any new taxes on trusts.
According to an analysis from the investment dealer Merrill Lynch, the income trust changes must be passed as new legislation. It's hard to imagine the Liberals trying to bring down the government over this because the party has no leader and won't elect one until next month. You can get that this has factored into Tory thinking.
