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TSX income trust sector sheds $20-billion

TAVIA GRANT AND DAVID PARKINSON

Globe and Mail Update

Latest comment posted at 6:23 PM EST 01/11/06

The government's surprise announcement that it would impose new taxes on income trusts triggered a 324-point plunge on the Canadian stock market ...Read the full article

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  1. Gerry Dunnhaupt from Toronto, Canada writes: A courageous decision that deserves the applause of all taxpayers. If the Liberals had not dithered last year, the impact would have been smaller at that time. But once TELUS converted to an income trust, BCE was put at a disadvantage forcing their hand to convert as well. And THAT, of course, was the famous straw that finally broke the camel's back. Brokers made millions peddling these trusts, but even they are now uncertain about their own product. Of course the government must try to lessen the impact on individuals hurt by this scheme but - like it or not - it was buyer beware all along.
  2. Patrick Cashman from Krydor (cridder) Saskatchewan, Canada writes: Considering that the Conservative government has demonstrated a significant western bias since being elected to a minority government, I wonder if Flaherty (or rather Harper) would have changed the income trust status if BCE hadn't followed Telus' conversion. Since some political analyst have said that the income trust fiasco by the liberals in 2005 cost then 250,000 votes, I wonder how many will leave the Conservative fold now.
  3. Firozali A. Mulla from Dar-Es-Salaam, Tanzania writes: Markets set to tumble
    TAVIA GRANT
    Globe and Mail Update
    Many a times I have screamed at the Canadian politicians. Please your economy is good, politics lousy. Who heard. The term economy is and the politics are the two rails of the railway train rails. Not one will do unless you are driving one wheeled train. That has not come. But Canadians are too proud of the economy and fumble with the politicians as what next Canadian ought to do. The economics and that too now the term GLOBAL economy has got many countries to the brink of collapse. If you think you can escape this, sincerely you ought to be reading more of the hedges and bank eating banks and Chinese coming to the far ends of the earth. You cannot Indians. They are bent on changing the global funds set to rise no matter whet happens to others.
    This is just like the nuke problem Let me grow. Rest you take of yourself. Trade has been turned in that manner. Like this or not, it is time to rethink and join the Chinese and Indians for your welfare. All succeed like we did in the Barter trade. The name is different only. That is all. The trade will carry on, the entrepreneurships has take a sudden 360 degree and makes all succumb to “What next?”
  4. bill the cat from calgary, Canada writes: Somebody help me out here! I understand that the distributions paid out of the country will not be taxed, but all of the distributions in-country are taxed at the personal income rate. Last time a looked my personal tax rate of 50% or so was significantly more than any corporation had to pay. Where is the tax loss in this equation. Eventually the RRSP money comes back to the government at the same rate, about 50% when my parents have to cash in their RRSPS and start spending the money. Can someone tell me where all the bleeding for the government starts in this equation??? I see a lot of my blood on the ground as the government has nailed the value of my RRSPs through this decsion, but how are they losing so much money? Ultimately, at personal income tax rates, the profits from trusts should be taxed at a higher level. Can an accountant help me on this one?
  5. Derek Holtom from Swan River, writes: Western bias? The spinners never stop, do they.
    Seems to me big business simply got too greedy. There was a limit to the amount of income trusts the government would allow. Big business went too far.
  6. Anti Elvis from Calgary, AB, Canada writes: Well Mr Harper, least you still have support of the...um....well....
  7. Andrew P from toronto, Canada writes: this is a great move by the Conservatives. Income trusts only care about short-term payouts. It does nothing for long-term strategic growth and innovation.
  8. Scottish Gary from Toronto, Canada writes: The key issue to remember here is that it is not BCE or Telus that drove this decision, it was the fear the banks were next. I applaud the conservative government for this action, especially given that it was the last nail in the Liberal coffin last fall. Regardless what trusts did for our pension plans, it left our companies and economy less competitive compared to American and other foreigns. Furthermore, and more important to me as an overtaxed Canadian, Trust structures continued to force the countries tax burden on the individuals by shifting taxed away from corporations. Just my two cents....
  9. robert marshall from Scarborough, Canada writes: Well I hate to be the guy that invested in those companies. The people that invested in the stock market may not want to invest in a conservative vote in the next election
  10. john stolarski from canmore, Canada writes: A bad promise not to tax income trusts at the last election campaign, with a reversal on policy means a bad day on the markets. This would never have happened if the Conservatives had never made an irresponsible promise concerning Income Trusts.

    Volatile Conservatives policies means volatile markets.
  11. enoch metatron from United States writes: This taxation change harming trust unit holders could be offset by new capital gains policy allowing investors to postpone taxation on reinvested gains. Unless there is some sweetener for investments, then the Harper Tories will be remembered by investors as worse than the Liberals.
  12. P C from Canada writes: Time to buy! Some of these companies taking a hit today are solid. Like yellow pages, Canadian oil sands... They have 4 years before any changes kick in. They where solid yesterday and will be tomorrow. Buy Buy Buy! It's a fire sale!
  13. Glenn Brown from Toronto, Canada writes: What has happened to Canada?
    The Prime Minister appears on a comedy show and his finance minister breaks a major election promise, hurting all Canadians who hope to retire with some dignity without being a burden on the state.
    Come on Canada, boot them out. It's time I voted Green.GB.
  14. Scott McAllister from Canada writes: What a dumb decision! What the gov't should have done is not allowed income trust conversions until the problem was studied more in depth. The problem is the high income tax stucture of Corporation which has to be addressed (33%) and changed.

    When Inco was bought by a foreign firm ...the Canadian gov't has now lost millions of tax reveneues because of current tax conversion rules. The revenue dept allowed the Irvings and other millionaires to transfer billions of assets overseas with no tax penalties even though it was not allowed by the tax act ...why was that???

    Income trusts provided alot of Canadians high income vs non exsitant income yields from bonds and common stock. So now the Canadian gov't is punishing people who want high incomes ... Good work ! Not!!
  15. Chris Li from Toronto, Canada writes: This is the problem every time there are changes in any government policices that concerns money, especially when these changes diminish the profits of the people who are the most outspoken. We all know that money is a sensitive issue, but I don't see anyone complaining over public funds that are wasted; instead, people go bonkers over the govenment for closing a known loophole in the corporate tax structure. It's not called a loophole for no reason!
  16. b mac from Canada writes: We all saw this coming. You cannot have some businesses paying taxes and some businesses not paying taxes. The government made a very fair and common sense decision which was long overdue. A great day for democracy.
  17. Brian Sexsmith from Toronto, Canada writes: CFO's can take heart knowing that these taxes will help fund Canada's share of the war against evil-doers in the middle east. When will family trust's take a hit?
  18. Alex B from AB, Canada writes: I don't really blame the Conservatives for doing this although their consultation was a bit thin. Is that Conservative blood I smell? Smells like an election. Maybe we'll try NDP this year, just for a laugh. These annual elections are getting expensive. Plus the moving costs in/out of Sussex Drive and Stornoway.
  19. SCOTT FLEURIE from Canada writes: A 25$ billion dollar destruction of wealth to fix an 500-800 million tax problem. GOOD MOVE, definitely a betrayal in what the Tories said last year...

    Yes I expect a wrath from the West...
  20. Anthony P from Toronto, Canada writes: Finally I agree with something this government did. This will benefit all Canadians, and force companies to re-invest capital and improve productive capacity, rather than dilute their earnings across investors.
  21. R L from Canada writes: Any governing party would have eventually removed the income tax loophole scam; it was inevitable. The difference for the Con. party is that they promised that they would not touch income trusts (a lie to get elected by their 'base'), another broken promise. Either they were financially incompetent at the time, or they outright lied knowing what they would have to do, but in either case, they are crashing and burning. The timing of the announcement was also very political; before the liberal party have a leader and when their minority government won't be taken down.
  22. R Harris from Canada writes: #2 interesting spin.
    How about giving us just one or two examples of where they 'demonstrated a significant western bias'?
    The only part of your comment that has some thruth is that Bell did cause this reaction. Royalty trusts haev been around in the oil patch from many years and there was no big acceleration in new ones. The Bell announcement led them to beleive this would spread throughout the TSE - inlcuding the banks - which could have created a huge problem in taxes and growth. That is not a western bias, that is a reality.
    That being said , I am not sure I agree with the steps taken given the significant impact on the market. I guess something had to be done and at least they were decisive about it - did not muse publicly and did not leak it to their friends. The change to pensioners is a big plus too.
  23. Progressive Canadian from Canada writes: And so the fat cats on Bay Street attempt to punish the government for ending their gravy train.
  24. globe mail from toronto, Canada writes: I applaud the courageuos decision made by the Finance Minister yesterday. It is about time that Trusts and overseas investors pay their fair share of taxes.

    Canadian taxpayers are already paying too much taxes. We do NOT need more Coporations to unload their tax burden on indiviual tax payers.
  25. Robert Simpson from Sudbury, Canada writes: Hello Gerry, What about the billions that innocent investors lost and the broken promise that this government made? Perhaps if Canadians (including structures) were not so heavily taxed, these structures would not have been created or so deeply loved. The fact is it is an absolute myth that the Country's coffers are lighten due to trusts. I would love to see any Government stay out of the market.
  26. bruce desjardins from Windsor, Canada writes: OK, good move for taxpayers. But check the trading records of MP's and Government staffers to see if they bailed in their own investments before the announcement.
  27. Steven Vasil from NOTL, writes: Haven't, yet, digested all the details but thank God this abomination of corporate malfeasance has been--at least partially--addressed. Only those suffering acute and biased self-interest would consider this to be a bad policy decsion. Forget the tax implications; they are secondary to the crux. Income trusts have only two beneficiaries: the investment community who underwrites them and the corporate officers who benefit from the conversion. (A close look at the compensation packages of these managers is, in many cases, a crystal ball into the future prospects--or lack, thereof--of many income trusts.) To those holding trust shares and reliant on the income? In a few years you'd be left holding the empty shell of a pillaged company anyway, having lost both your income and your capital.
  28. Jeffrey McAllister from Kamloops BC, Canada writes: As a former small business owner without the benefit of a pension plan the trust income was very important . Now that the rug has been pulled out from this vital cash flow...which I paid tax on please remember my former Tory friends that you have blown itand now we are back to the Grits.
  29. dave peters from Stampede Country, Canada writes: Nice way to divert attention from Peter MacKay and his canine comments.
  30. Chester Drawers from Canada writes: They lied. They are no different than the Lieberals. During the lead up to and during the campaign, they said no new taxes on Trusts. Give me back the Reform Party of Canada.
  31. russ mcneil from nanoose bay, bc, Canada writes: Did this government anticipate the consequence of this decision on small investors? This is simply outrageous. Tens of thousands of Canadians are watching helplessly as their investment and retirements portfolios and RRSP's melt down after this announcement. I would be very interested to know how many large investors may have 'magically' pulled out in the days leading up to this.
  32. Dave T from midwest, Canada writes: To say that this was a buyer beware situation misses the main point that the Tories promised not to touch the trusts and investors assumed they were acting in good faith. Good investment decisions require solid information from honest reliable people. The Tories have not acted in good faith nor was the information they provided either honest or reliable. For those of you applauding this move, imagine waking up this morning to discover your vehicle missing from your driveway, inexplicably gone. Imagine your bewilderment at that. You phone the police and they shrug their shoulders and tell you there is nothing you can do. Move to a better neighbourhood maybe. This is how many of us trust holders are feeling today.
  33. Andre Michaels from Leamington, Canada writes: One of the few decisions I agree with the government on. Companies were using income trusts to avoid paying taxes. It is a simple as that. It had to be stopped. Period. I just love how all the Bay street gurus are crying now...just three words for them...greedy greedy greedy!!!!
  34. Alistair McLaughlin from Ottawa, Canada writes: This move has cost me personally, but I understand that it needed to be done. With the higher dividend tax credit the Liberals implemented last year, and the capital gains tax cuts Flaherty is talking about, the negative effects of this decision should be mitigated. Short term pain, however, cannot be avoided. The whole trust conversion trend was a cancer in corporate Canada and had to be ended at some point. Trusts are merely flow-through entities that don't pursue growth through reinvestment of earnings. The massive levels of trust conversions were therefore bad for the Canadian economy's future growth.
  35. Ren Stimpy from Calgary, Canada writes: #4 - the difference here is that the governement misses out on the Corporate tax rate. they get your taxes at 50% no matter what.

    What the governement is doing is the right thing - its stops everyone and their brother from converting to dodge corporate taxes.

    As an aside - the trust units should also not be RRSP eligible because no tax at all has been paid on the distributed funds and will not until the money is withdrawn (usually at a lower personal tax rate).
  36. Rick McNaulty from Calgary, Canada writes: This topic is a little too complicated for the socialist freakshow to handle. Can the Loonie Left please turn the page and begin whinging about puppies or something.
  37. adam mateyko from calgary, Canada writes: Flaherty and his master, Harper are idiots. Is this a 3rd world country like Ecuador that acts against investors in rash moves like the one announced yesterday. The clear signal is that the Conservatives are not business friendly, not investor friendly and not retiree friendly. Who have I missed?

    The government, should think over this announced move and rescind its intentions immediately.

    At one stroke, Harper has destroyed his chances of forming another government. His base in Alberta, where a lot of the trusts are based, is furious. Money talks, and this agenda will not be viewed favourable; witness the drop in the $ today.

    It would be prudent to have the government clarify its intentions
    and withdraw these threats against investment.

    adamm
  38. W M from Canada writes: Too bad they decided to play election politics against another minority last year or this could have been fixed sooner and with less heartache for the people who have bought since then. To say this is courageous is a bit of a stretch, inasmuch as they are unlikely to get much resistance from any of the opposition parties on this, whereas one short year ago, these very same Conservatives were .
  39. Stevie Dee from Toronto, Canada writes: #4 Here's your help: When you own shares in a Corporation, let's say a bank or BCE right now for example, they pay corporate taxes. Then, from their AFTER TAX profits they pay investors a distribution in the form of a dividend. Dividends are taxed (albeit at a lower level) a second time in the hands of investors.

    Income trusts, on the other hand, flow all profits directly through to unitholders. The profits are taxed SOLELY in the hands of the investor, thereby eliminating one of the levels of taxation for the Federal government. There's your revenue leakage at the Federal level.

    One of two moves was necessary to level the playing field (something that the Liberals realized but only partially addressed with their dividend tax cut); the dividend tax had to be removed or income trusts had to be taxed the same way as corporations. Given the lost Federal revenue due to the GST cut, the upcoming capital gains ammendments, I doubt that there was any option available to Flaherty.

    A further comment. I've been warning for quite some time that people treating income trusts as GIC's with higher yields were in for a nasty surprise. First, income trusts trade openly (like stocks) and their unit prices reflected their preferential tax treatment. Second, share prices can only be sustained by consistent payouts. These payouts come from revenue. What happens to all these energy trusts when these high commodity prices (oil, natural gase, precious metals, etc.) ease and the underlying profits are shaved? The payouts diminish and trust values drop is what. As you can see, these are not suitable replacements for conservative fixed income products. Especially in a risk averse (ie. seniors) portfolio.

    Lastly, the trust structure is bad for company growth. Under the trust mandate, all profits must be paid out, not retained for internal growth and/or future acquisitions. This move by Flaherty is a good one, albeit an unpopular one.
  40. bruno tomassini from Canada writes: Shame on you! Shame on you!

    You worked hard, invested some savings in Income Trusts to supplement your retirement income.

    You should be ashamed of yourself over and over.

    You should have spent it all and let the Income Trusts or Corporations find their capital...where?

    In addition, if you are part of an unfunded pension plan you as a reward will soon receive curtailed benefits as the plan can't generate sufficient returns on the investment to keep solvent.

    You deserve it!

    And you baby boomers, you greedy people supporting your childrens soon you will have to support your parents as well as they have less income to live on.

    You thought you were smart! You thought you made it!

    But don't worry, you will split your inexistent pension with your spouse.

    Cheer on!

    Harper and Flaherty will look after you.
  41. John McMortimer-Boyles from Edmonton, Canada writes: On the plus side, in a day or two when the smoke clears, investors with some cash reserves should be able to pick up a choice stock or two for less than it would have cost yesterday. With the exception of income trusts, where the tax rules are chanign, everthing else is pretty much business as usual.
  42. Rick Czarnota from Calgary, writes: #19 Scott Fleurie you are going to be waiting a long time to see 'a wrath from the West' against the Conservatives. What other options are there? None. The Liberals have no hope east of Ontario and the NDP's policies are in direct opposition to the standard of living of anyone who makes more than $30K/yr. #14 Scott MacAllister don't worry about corporate taxes...the Conservatives announced they will be lowered and will continue with that policy. Plus...they want to lower and eventually eliminate the Capital Gains tax. Everything can't happen all at once and I prefer a policy that aims to reduce personal tax to as little as possible.
  43. Dave Muise from Canada writes: Post #31 I agree. How many people have investments in funds that are not trust funds and have to sit and watch thousands of dollars disappear after this surprise announcement.
    They need to do something about the trust funds but it could have been done a lot differently without causing so much chaos. This was done deliberately. There is no way they didn't anticipate what this announcement would do to the stock market.
    It's time to take the conservatives down and take them down hard.
  44. John Anthony from Bowen Island, Canada writes: ' Read my Lips, no new taxes' Remember what happened to him!!

    The giant sucking sound is Harpers' base heading South.

    All this Tax fairness twaddle ( in the face of $15 billion surpluses!) in the MSM and Revenue Canada is coming from people who wouldn't vote for him anyway.
    If I were the oposition I would force an election, the conservatives will sit it out.
  45. Geoffrey L from Hamilton, Canada writes: I would say Jim Flaherty is the dog now.
  46. Richard Hawrelak from Sarnia, Canada writes: Your toast Steevie and Bad Dog MacKay. Better get your resumes up-dated - that is, delete references to political time served.
  47. Troy Maclure from A van down by the river, Canada writes: As a taxpayer, I would just like to say that I usually like to get kissed before I get f....well you get the idea. So how does the government plan to overcome the losses when all the individual investors claim these losses on their taxes? Oh wait, they will probably wait and suprise us in April with the fact that they are disallowed. Hope nobody missed the Liberals too much cause they will be right back. A message to the conservative government - don't make long term plans. Idiots.
  48. K P from Halifax, Canada writes: I think someone should find out how many of these sleaseballs from Ottawa and Bay st. sold their trusts yesterday. You can bet they did.
  49. JOE LICSKAI from harrisburg, Canada writes: Thank-you very much to the government of this country for once again helping the responsible in our country for trying to help themselves through frugal savings and investment, rather than rely on CPP and old age security. The premise that they are helping me/us by making the corporations that I have invested in pay fair tax is flawed. If I spent every dollar I ever earned and was not invested, then I would applaud this move, because unfairly taxed corporations would require the goverment to get their funding from the private citizens pockets. However, private citizens that have been frugal and saved cash for investment, are being penalized, by being asked to take a hit on their investment to fund this latest move.
    Either way, it is the responsible ones that are taking the hit, either in increased taxes, or due to a responsible investment strategy. If you don't have a penny to your name, you have lost nothing, and will lose nothing. You will not pay any addition income or other taxes, and there will be no negative impact on the investments you did not make.
    Bottom line,.........spend spend, spend, as irresposibly as you want,....rackup those debts. one way or the other the goverment will find a way to rescue you by sticking it to the resat of the population that is or has been financially responsible,...........!!!
  50. Phil S from Toronto, Canada writes: It's all lies. The proof is in the pudding, why do you think the government has been posting huge surpluses even when the income trusts were booming? Because during an income trust conversion, there's a HUGE capital gains created by the conversion. And we small investors pay for it. When the income trust puts their profits in our hands, guess what? We pay huge personal taxes on it. Also look at the cash flow statements - income trusts pay tax. REITs pay property tax, business trusts also pay taxes, just not taxes on profits. Why? Because the profits are all distributed! In exactly the same way that a corporation which earns no profit pays no tax. What do they want to do, raise the tax on corporations that don't make any profits?
    Bill Holland of CI Financial is right. Investing in Canada is like investing in some third world banana republic. No wonder foreign capital is pouring out of the country right now!!! All you lefties got what you wanted, higher taxes. Congratulations.
  51. veruckt veruckt from Canada writes: Yeah for the conservtive decision and TIME TO BUY!
  52. The Bunner from the North, Canada writes: I hope that there is an investigation into how much 'insider' selling, prior to the announcement, there was by people who new this was coming.
  53. K L from Canada writes: The 300 points plus decline today is, I believe, being spearheaded by disillusioned foreign investors who mistakenly thought that this country was governed by intelligent, responsible, and trustworthy politicians who kept their promises. They were wrong and we are down $27 billion to fix an apparent $500million tax shortfall (and this is subject to debate)
  54. concerned citizen from Canada writes: given the beating trusts are taking on the market, it's safe to assume that today alone, some $10 billion in capital has been lost. does anyone else understand why a $10 billion loss was necessary to make up for $5-800 million in 'lost' tax revenue?!!!!
  55. Jimmy K from Toronto, Canada writes: Arrrg! To everyone who is talking about the $800 million tax loss vs 20 billion in market cap loss, you are missing the ENTIRE POINT of this move. This wasn't to stem tax losses, that was only ONE piece of the puzzle. What about the fact that unsuitable companies were converting into trusts simply to avoid taxes, even if that meant messing up their entire businesses? (hello precision drilling!!) Trusts work great for real estate, for oil and gas, maybe even for the wireline businesses of BCE and Telus. But it is obvious the government was forced to act because other major corps were about to switch, who knows, maybe Royal Bank was going to convert their retail banking operations into an income trust? Say what you want about Harper and the government in power, but the people who really run the show in this file is the finance deptartment, and these people are very smart, educated, and know what they are doing. They saw a clear and present danger to the Canadian economy, and they convinced the government to make a politically suicidal decision to stop it. I sincerely hope that Canadians understand that, or else from now on our governments will always make decisions that are good for their partisan interests as opposed to making decisions that are good for the country. This was the right move to make, it should have been done years ago. Imagine how bad this would have been if we put this off for another two years, and another 200billion dollars worth of companies had joiend the income trust party?
  56. Larry Alexander from Newe Glasgow, N.S., Canada writes: Awwwww! If they could have just given me one more day! I was afraid that something like this was coming and I was going to cash in my trusts today. I was just wanted to stick around for month end to qualify for the next round of distributions. Even though I was down a little I wanted out. I can't say I disagree with the decision, but the timing reeks!
  57. Geoffrey L from Hamilton, Canada writes: To all of you spouting off about insider selling. If anything Bay Street types got handed their head with the losses that have wiped out 4 years of growth in the Income Trust sector. The Conservatives were able to nuke everyone with this, because people didn't realize that they would lie to do this.
  58. Daniel F Vickers from Vancouver, Canada writes: As a public service employee for most of my adult life, I was struck by Andrew Martyn (of Davis-Rea Ltd.)'s observation that it was going to be an 'ugly, ugly morning' on the TSE. Well, in my line of work, it's been a couple of 'ugly, ugly' decades in terms of my ability to provide with the reduced funds available to my department the sort of public service that I received when I entered the work force thirty years ago. Having just returned from the U.S.A., where governments that I'm sure Mr. Martyn would far rather live under, believe with all their soul that services for working people would far more productively be transfered into private colleges, elite hospitals, family research foundations, and the like (not to mention classy cars and spacious summer cottages for the rich), I have to applaud Mr. Flaherty for hesitating at least this once before joining in the general global assault on public service. Call me a 'civil service redneck', but I find Martyn's 'ugly, ugly' phrase deeply offensive.
  59. Del Blackstock from Prince George, Canada writes: Re: #50, good comment, however, I understand from the Ministers interview that REIT trusts are excempt from this blow to seniors retirement funds, wonder why, did someone have a lot in the real estate trusts that would be upset by been treated the same as the rest of the Canadains>?
  60. Gupta Sahab from United States writes: This just shows that Canada is a communist country, run by a communist government. This is a clear breach of trust and election promises by your Prime Minister. Any self-respecting Canadian should take a first opportunity to vote this bunch of market-unfriendly politicians out of office. As for me, this country will not see my capital again.
  61. marlene gregory from Toronto, Canada writes: Yes, #45, the DOG is Flaherty. Sadly, all Canadian politicians have shown themselves to be liars and thieves. We need to clean the deck of them all. We also need an RCMP investigation into how many Income Trusts Flaherty and Harper sold yesterday before trading stopped on the TSX.
  62. S Mason from London Ontario, Canada writes: # 52 - you're kidding, right?
  63. Dupa Jasiu from Toronto, Canada writes: Like every decision it today's complex society taken by government, this one is like a stick..with two ends: bad and good one. Truth rests in between.
  64. brokeback mountain from toronto, Canada writes: so, what's more important to you? voting against legal gay marriage to make gay people's life miserable .... for those who voted for the conservative government, now u know what are really like
  65. D. Clearwater from Lethbridge, AB, Canada writes: Hey, the investors should quit whining as this is, as they say, simply 'market forces at work'. Supply, demand, consumer/investor confidence, greed, no regulation/regulation, tax breaks, changes to the tax laws, government grants/loans, government investments... everything is a part of the 'market' these days. OVerall, I applaud the decision despite the fallout. And despite the fallout, others will find ways to make money off this. The market at work.
  66. S M from Hamilton, Canada writes: #4 - Remember that a large majority of these units were held in RRSP's and RRIF's. Therefore, many of these units would create an income flow that is taxed both in the future, and often at lower tax rates (due to lower incomes in retirement and therefore, lower tax brackets than your working tax level of 50%), than the current corporate tax rates. Therefore, the tax leakage.
  67. Robert McCrank from Calgary, Canada writes: The lack of detail in this announcement makes any sensible analysis impossible. Is it the income of the trust which will be taxed or its distributions? Surely it will be the income. If that is so and if the distributions (of income) will be treated the same as dividends then the changes will be neutral to investors (other than RSPs, Pensions etc). Trusts which are able to distribute cash flow in excess of their taxable income should be able to continue to do so. There are already provisions for the taxation of any income paid to foreign investors, so what is the issue. The market reaction is grossly overblown.

    The whole scare about lost taxes is a farce. Individuals are taxed at higher rates than Corporations. The income flowing into RSPs and Pensions is treated exactly as any other income which is earned in those vehicles, i.e. taxed when it comes out. This creates a huge reserve fund of future taxes.

    In any event the vastly more signifigant announcement concerning income splitting between spouses on pension income has been overshadowed. Again there is no detail but if the Minister's words mean anything, this will be a real tax reform. One wonders if he might consider applying this principal to all income by all spouses which would provide a level of fairness to all taxpayers and would especially benefit young families with children.
  68. concerned citizen from Canada writes: #64 - not sure what your agenda is but I'm positive this matter has NOTHING to do with gay marriage. And to #55 - no one has missed the point. Since when did the gov't have the role of business consultant/strategist? if there are companies that should not be in trust format, the market would eventually recognize this and their valuation would fall in line. other businesses are suited to this structure and many DO NOT shell out all of its profits but rather retain 10-25% for growth, r&d, etc. This is a market based economy so let the market work out and recognize the inadequacies of some but was it necessary to kill the rest? This just seems an extreme measure and one the gov't PROMISED not to make. Would it not have been more prudent to develop parameters for trusts? why not simply cap the percentage of profits a trust can distribute? While this may have caused many trusts to reduce their payout ratio, it would have satisfied the gov't's concerns with the lack of reinvestment and would not have wiped out billions of dollars of capital (a few grand of which was mine:)).
  69. Penny Dreadful from Waterloo, Canada writes: While I took a haircut this morning like every other income trust investor, I can't fault the fairness or the result. When the new dividend taxation regime is fullt implemented, the total tax paid on trust earnings (the new distribution tax plus the reduced personal tax on those distributions) will be within 1-2% of the current rate paid on taxable distributions in Ontario of 46%. So if you are holding units personally, I'm not sure they are really worth less to you today (on a discounted cash flow basis - assuming you hold them for a long time) than they were yesterday.

    The real losers will be RRSPs and foreign investors which will suffer a new 32% tax at the trust level, reducing demand for units (and hence our haircut). It was fun while it latsed, but now we'll need to evaluate those trust investments on P/E or whatever measure you use, same as an incorporated business. I don't like losing money anymore than anyone else, but the result is correct and you have to give the Conservatives credit for their brave approach to fixing this.
  70. Patrick Cashman from Krydor (cridder) Saskatchewan, Canada writes: To #22. When hasn't the federal government shown a western bias. Their environMENTAL plan goes entirely against the interests of eastern Canada, benefiting the oil sands and petroleum companies who are the dominant polluters, while giving them a holiday for improving their record of emissions; killing off of the gun registry; and not honouring an agreement with Ontario that a previous government had agreed to. If you look at their grassroots movements which also shows a western bias this would include their opposition to the Kelowna accord and to the day care plan. In fact, their hasn't been anything that this goverment has presented to parliament that has been in the interest of central and eastern Canada. God hope we have a non-confidance motion soon. It will never be soon enough.
  71. RAYNALD LACHANCE from Canada writes: #69 must have voted for those c*tive r*d ncks to speak that way!
    Saying such means #69 must not have much invested or, on the contrary, is full of it and can afford to loose. 'I'm not sure they are really worth less to you today (on a discounted cash flow basis - assuming you hold them for a long time) than they were yesterday.'

    We are not all this wealthy and getting 20% or so knocked off the share price in less than a few hours is not as mild as #69 wants it to be seen as. Sorry!
  72. Murray Schultz from West Vancouver, Canada writes: When are you numbskulls going to learn to where the money actually goes? When a foreign investor (or any investor) buys IPO stock (units) in an income trust, the managers of the trust (who are paid employees with standard deductions taken at the source) invest the money in the purchase of assets (on which the previous owners must pay tax), expansion (which causes services and materials to be used (on which federal and provincial taxes apply) and professional services such as legal, accounting and the like (all taxed). This list goes on, but you get the idea.

    Then the market bids the price of the units up or down based on among other factors, size and stability of distribtutions (management), industry sector and the difference between the bank rate and the current yeild of the trust. No magic. The idea being that taxes are merely deferred since they are paid out to people, groups or companies that eventually have a tax burden; the monthly or quartery distributions actually get taxed - no kidding.

    In the US there is a special tax levied against large business but the productive and growth-oriented small and meduim sized operations (that employ most of the population) are allowed to grow. Hmmm.

    Have the inmates taken over the facility?
  73. Chris Booth from Toronto, Canada writes: This fiscal "correction" is so flawed that the NDP supports it --and...you know something is seriously wrong when the NDP is cheering your tax policy. I had fervently hoped that the income trust movement would push the government to eliminate further taxes (to make the standard corporate structure more competitive) and reduce their apparent dependence on this source of revenue. Corporate taxes are misdirection -- corporations do not pay taxes (they are fictitious legal entities) -- people pay taxes. The burden of corporate taxes falls on investors and owners in lower returns, employees in lower salaries and customers in a higher cost of goods and services. This is a truth so basic that it is covered in introductory economics courses pertaining to public policy. These taxes fail the transparency test by allowing the government to pretend that some "other" - the corporation is paying for Canadians' public services. Rather than doing what is right, this conservative government has wielded their fiscal sledgehammer in an attempt to smash things back into place. P.S. "courageous" perhaps... but hopefully only in the "Yes, Minister" sense of the word.
  74. Chris A from Hamilton, Canada writes: hey #19

    have you ever stopped to consider the difference between cash flow and balance sheet? you are confused on the issue with your comment.

    What you should consider is that, in Canada, the minority subsidize the majority.
    Im happier to see the cash flow coming in than have an increase in my taxes. Further, never invest what you can't afford to lose. Unfortunately, some people lost today; Primarily those retirees that were earning in the biggest economic boom in the last century. I don't think they're hurting unless they squandered their money during that time. In which case, too bad for them, Im not responsible for their irresponsible actions.
  75. Jon Wilde from stoney creek, Canada writes: So our finance minister believes we need to shift the tax burden from individuals to corporations.

    But aren't all corporations ultimately owned by individuals?
  76. Geoffrey L from Hamilton, Canada writes: Right Honourable Stephen Harper
    Honourable James M. Flaherty

    Comrades!

    I have a better idea as to how to prevent tax leakage from income trusts.

    Shut down the stock market. Nationalize all foreign and privately owned companies. Withhold 100% of our income at payroll. Cancel RRSP accounts. Pay us all $20 per month, provide us with shelter, education and healthcare.

    What works for Cuba, should work for Canada! After all, Fidel knows what's best!

    ¡Viva La Revolución!
    Geoffrey Laxton
  77. Jam ie from Canada writes: Maybe I should invest in Bolivia, much more stable
  78. Terry York from Toronto, Canada writes: Please have someone explain to me how reducing payouts by taxing trusts and putting less money in my pocket differ from raising my personal taxes. Flaherty' says he's concerned about the individual paying more tax if trusts pay little or none, but either way he reduces my disposable income. He needs a refresher in basic math. Had he reduced tax on dividends, he would have given us a more equitable solution and likely stopped the rush of conversions to trusts. I have written to various members of parliament. Hope you all do also!
    I like the comment someone else made earlier:" A 25$ billion dollar destruction of wealth to fix an 500-800 million tax problem. GOOD MOVE, definitely a betrayal in what the Tories said last year..."and I add not to mention the taxes they will now lose along with this amount! Their solutions have bought them another turn in the opposition as far as I'm concerned. No vote for them this time!! You can't lie and expect to return to power.
  79. benny ben from Montreal, writes: It's good decision especially if all the major Canadian companies were heading down that road. Who'd be left to foot the tax bills, probably us the Canadian taxpayers. I do believe that businesses have a responsibility to pay it's fair share of taxes. Also, the Gov't should even be more aggressive to recover all monies owed to them that are stored in big businesses off-shore account.

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