Income trust tax a screw-up — what a surprise

Monday, April 9, 2007

Last October, my investments took a beating when the Conservatives brought in a new tax on income trusts, something that they swore during their election campaign that they wouldn’t do. If I had ever thought about voting Conservative again (which I hadn’t), that would have been enough to stop that notion.

Today, the Globe and Mail ran a story showing the real numbers: when income trust shares plummeted in value, a lot of new buyers stepped in to take over these companies, and many of these new buyers don’t pay Canadian taxes since they’re foreign entities or domestic private equity. That means that tax dollars that would have been payable by those trust organizations under the new law aren’t going to the Canadian government.

A quoted source in the article states that the 11 takeovers that have occurred since the announcement last year could result in over $73 million in lost taxes. Each 5% of the trust sector that is bought up by foreign entities or domestic private equity results in an additional $165 million in lost tax revenue per year, so if only 15% of the trust sector is so acquired, there goes Flaherty’s $500 million/year that he was hoping to recoup by screwing us over with the income trust tax.

This estimate even appears to be conservative (no pun intended): the G&M article quoted another unnamed analyst who said that the current acquisitions will cost Ottawa $130 million in annual lost tax revenue, not $73 million, and that if the profile of acquiring companies stays consistent to what it has been in the six months since this debacle started, the annual tax loss will be about $4.2 billion.

So instead of earning an extra $500 million in annual tax revenue, the Conservative government has created the potential to lose over eight times that amount, while at the same time causing a huge drop in the investment portfolio of everyone owning income trust units. Call it a lose-lose situation, and vote these guys out before they completely bankrupt us with their inept financial management.

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