Income Trust Tax decision

Income Trusts on Wednesday-Night.com

Four years later

Flaherty offers apology for income trust hurt
Jim Flaherty may have faced down the financial crisis, but he was forced on the defensive by a feisty senior yesterday at a policy conference, where he issued a public apology for the hardship inflicted by his decision to tax income trusts nearly four years ago.
“I apologize for the fact that it did affect a lot of Canadians, including you,” the Finance Minister said in response to a question at the 79th annual Couchiching Conference from Sheila Whitzman, who called his Oct. 31, 2006, decision “a Halloween massacre.”
Activists who have long opposed Mr. Flaherty’s decision say it is the first time he has apologized in a public forum. Mr. Flaherty said he had been finance minister for only six months, “so it was probably a politically unwise thing to do — certainly for me personally.”
But he was unrepentent about the substance of the move that caused unit prices for all publicly listed income trusts to drop in the weeks after the sudden announcement. “It needed to be done, it wasn’t going to get better….
Critics point out that the Conservatives had campaigned during the 2006 election to leave the favourable tax structure for income trusts alone, and dispute the Department of Finance’s calculation that the conversion to trust status was costing the country hundreds of millions of dollars in “tax leakage.”

One Year Later

31 October 2007

Income trust investors still angry one year later
… It was one year ago that Finance Minister Jim Flaherty stunned the investment community by announcing the Conservative government would bring in a tax on income trusts by 2011 — reversing a campaign pledge made months earlier to leave them untaxed.
The wrath of the hundreds of thousands of investors who had poured billions of dollars into these trusts was immediate and it wasn’t hard to see why.
Income trusts had fast become a favourite place for many investors to put their money — especially seniors.
Most trusts paid distributions that were far higher than what they could earn with GICs or dividend-paying stocks.
… Within two weeks of the Halloween announcement, the income trust sector lost about $35 billion of its market value, according to industry figures.
… A year later, the sector has partially recovered … But for most trust investors, the only big gains have come from takeover offers for their trusts and the often juicy premiums attached to them.
More than 40 trusts have been acquired since the Halloween announcement.

Burned by the trust tax, couple turn to NAFTA
JOHN PARTRIDGE With a file from Reuters
October 31, 2007
A wealthy Chicago couple are going after the Canadian government under the North American free-trade agreement for at least $6.5-million in damages for losses they say they suffered because of Ottawa’s decision to eliminate the tax-free status of energy and income trusts.
On the eve of the first anniversary of the federal government’s surprise Halloween raid on trusts of all varieties, Marvin and Elaine Gottlieb said they have filed a Notice of Intent to Submit a Claim to Arbitration under NAFTA – and that they are the first Americans to do so in connection with the trust decision.
The move to start taxing the trusts in 2011 on the same basis as corporations marked the reversal of a campaign pledge by Prime Minister Stephen Harper not to touch the then hugely popular investment vehicles.
The Gottliebs said at a televised press conference in Ottawa that they are among thousands of Americans who lost an estimated $5-billion on energy trusts in the fallout from the move by Mr. Harper’s government.