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Today's Big Story

Sinking Trusts

Tories staunch flow from gaping tax wound.

By Richard Warnica 1 Nov 2006 | TheTyee.ca

Richard Warnica is a senior editor at The Tyee.

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The Star, Post and Globe all lead today with the Conservatives’ new income trust plan, which will see levies slapped on the previously un-taxed sector.

The announcement, made late Tuesday by Finance Minister Jim Flaherty, had an immediate effect on the market. The TSE tumbled nearly two per cent by noon Eastern and the dollar was down half a cent.

Hardest hit were the telecoms. Both BCE and Telus had announced plans to convert to trusts this fall; both plans are now likely on hold. The trust heavy oil and gas sector also lashed out against the planned change.

Unlike normal corporations, income trusts pass all their cash flow onto unitholders in monthly dividends, avoiding corporate taxes.

In conversation with the Globe editorial board Wednesday, Flaherty said the trust market, which had ballooned from $20 to $200 billion in the last decade, presented a clear and present danger to the federal tax base. That danger was enough to justify breaking the Conservatives’ promise, made last January, to leave the trust sector alone, according to Flaherty.

The timing of Tuesday’s announcement meant most pundits were too late to file reaction for Wednesday’s papers. The Globe’s Eric Reguly managed to beat deadline though. He praised the deal, saying the tax burden shift from individuals to corporations was badly needed.

Coincidently though, the Star’s Jim Travers raised another sliver of the trust issue in his Tuesday column

The Liberals had promised to review the trust issue last fall. Trusts though, are held heavily by pensioners, a key voting demographic. So when the government fell and an election was called, the Liberals backed off. 

At the time, some questioned whether finance officials had tipped off friends in the sector before the announcement. And in the middle of the election campaign, the RCMP publicly confirmed they were investigating the charges. That, some say, cost the Grits the election.

From Travers column:

In the stony and continuing silence about an investigation that has yet to lead to a single charge, official Ottawa is coalescing around a couple of theories. One is benign, the other sinister.

With opposition parties screaming for action, the RCMP chose to announce its investigation rather than shelve it until after the election and risk being accused of Liberal favouritism. Not smart but certainly understandable.

Much more worrying is the festering speculation that the RCMP drove a stake through the ruling party as payback for the Paul Martin decision to order the Arar inquiry Jean Chrétien repeatedly blocked.

 [Tyee]

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