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#1
11-01-2006, 01:05 PM
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Canadian Income trusts
The gov't announced taxation of dividends from income trusts. Trusts that currently exist will start paying taxes in 2011, any new trusts will start paying taxes in 2007. CAD and Canadian stocks selling off, and this will most likely mean the end for income trusts. Current trusts will stick around until 2011 for sure, but it's doubtful any new ones will be created. This is really big story for the Canadian market.
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#3
11-01-2006, 01:18 PM
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Re: Canadian Income trusts
[ QUOTE ]
Im still crying. Took a Big Hit. The energy trusts will rebound but for many of the others it spells trouble [/ QUOTE ] Are you Canadian? An article I read said that there is some sort of dividend tax credit canadian citizens can use to offset the hit. Must be a pretty unpopular move up there though, as the stocks are still all down ~10% today.
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#4
11-02-2006, 05:17 PM
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Re: Canadian Income trusts
[ QUOTE ]
[ QUOTE ] Im still crying. Took a Big Hit. The energy trusts will rebound but for many of the others it spells trouble [/ QUOTE ] Are you Canadian? An article I read said that there is some sort of dividend tax credit canadian citizens can use to offset the hit. Must be a pretty unpopular move up there though, as the stocks are still all down ~10% today. [/ QUOTE ] Yes, generally unpopular. There was concern that more and more corporations were going the income trust route (with two major telecoms + one big media company exploring conversion) and it was eroding the tax base, so not all reaction is unfavourable per se. Many people agree that something had to be done, but both the timing and the proposed changes have provoked widespread anger. $25 billion+ evaporated in the past 48 hours, and the TSX suffered its biggest one day decline in years. A lot of the outrage stems from the fact that the current gov't made a promise during the last Federal election not to change the way income trusts would be taxed. Most Canadians (both individuals and institutions/funds) took them at their word and subsequently invested heavily in trusts due to recent excellent average performance as a group. Many companies have converted or are in the process of converting and are suffering some significant consequences. It's going to be a while before all the ramifications are understood. You're also right about the dividend tax credit. The latest incarnation of it was seen as an attempt to offset some of the advantages income trusts had vs dividend paying stocks. As I understand it, trust distributions will now be taxed as income and investors will be able to take advantage of the dividend tax credit. Effective yields will be lower, but for high income earners in particular it shouldn't be that different. Biggest impact might be re. tax deferred accounts (RRSPs and such), but everyone has 4 years to figure that out. Bear in mind that there is also no guarantee that the proposed legislation will pass in present form in a minority gov't situation. The opposition senses blood and is screaming loudly. The previous Liberal gov't ran headlong into a scandal during the last election campaign when they leaked word that they planned to make changes to Income trusts. There were RCMP investigations and accusations of favour trading and insider information. The Conservatives (now the gov't) were quick to assure Canadians that they had no intention of making similar changes, and pilloried the Liberals over their "arrogance, dishonesty, and corruption" and made a lot of political headway as a result. The Liberals are therefore unlikely to let this go quietly. There is an apparent provision to exempt REITs, and some talk bubbling up that resource trusts shouldn't be treated the same way as business trusts, but it's not close to clear how it's all going to turn out. The Conservatives are probably counting on the fact that the Liberals are still without a leader (and are therefore not likely to go all the way with this), but the gov't has already had to make concessions in other areas (environmental policy in particular) in recent days after another opposition party (NDP) threatened to start introducing a series of bills that would effectively be confidence votes (the gov't would have to win or an election would be triggered), so it's by no means a done deal. The NDP doesn't have any particular reason to fear an election, and are trying to take advantage of this position to pursue their policy agenda. This also pisses off a lot of people in Alberta, which has been the birth place and strongest supporter of the Reform/Alliance wing of the Conservative party (of which Harper is a central figure). However, it's unlikely that anyone will be able to move in as a viable alternative (only a handful of Liberals have been elected in Alberta in recent years), so it'll probably blow over. Meh. High drama in the House of Commons these days. Like many others, I took a significant hit from all this. But I'm spending my time exploring investment opportunities. There are now dozens of solid, profitable trusts with yields in excess of 10% selling at what might well turn out to be bargain basement valuations. Then there's also the likelihood that a lot of these trusts probably start to look like attractive acquisition targets at these levels.
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#5
11-02-2006, 07:20 PM
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Re: Canadian Income trusts
They might have attractive yields, but you could probably say they have the same after tax yield now as they did before the new legislation.
The Canadian dollar is also at risk, a lot of foreign money will be leaving Canada now.
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#6
11-02-2006, 08:13 PM
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Re: Canadian Income trusts
[ QUOTE ]
They might have attractive yields, but you could probably say they have the same after tax yield now as they did before the new legislation. The Canadian dollar is also at risk, a lot of foreign money will be leaving Canada now. [/ QUOTE ] You are right about that. Many thought the CDN dollar amy even equal its US counterpart. Now look to the CDN 4 To weaken. This will also be the death of the conserative government.
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#7
11-01-2006, 03:56 PM
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Re: Canadian Income trusts
Wow. Glad I sold mine a few months ago, better lucky than smart I always say.
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Hybrid Mode
