Business Trusts - Skeletons out of the Closet - Revisiting the Ghosts from Halloween Past
Thursday 01 November 2007
It has been one year since Finance Minister Jim Flaherty wreaked havoc on the income trust market by announcing a proposal to tax income trusts come 2011.
- Total Returns - Though the trusts appear to have finally regained lost ground of a year ago, on a relative basis, the S&P/TSX Capped Income Trust total return is 20% behind the S&P/TSX Capped Composite total return, and investing is a relative endeavour.
- Trust Takeover Activity - Since October 31, 2006, a total of 43 takeover offers have been announced (33 closed deals and 10 pending), at an average takeout premium of 23% and representing roughly $29 billion in market cap.
- Distribution Track Record - Despite initial belief of the contrary, distribution increases (96) have significantly outweighed cuts (68) over the past year.
- Unit Prices - On average, trusts suffered a 10% unit price decline in the 30 days following the announcement versus an overall increase of 2% during the one-year period.
Saturday 27 October 2007 Some treats a year after Halloween bombshell
Nearly a year after federal Finance Minister Jim Flaherty's Halloween income-trust massacre, investors are still haunted by the Conservative government's promise-breaking move to tax the popular investment vehicles
Wednesday 26 September 2007 S&P/TSX Capped Energy Trust (RTEN : 171.37), Net Change: 2.41, % Change: 1.43%
Kiss your Canadian Oil Sands good bye. The Abu Dhabi National Energy Company PJSC's (TAQA) $5 billion acquisition of PrimeWest Energy Trust (PWI.UN) is its third transaction in Canada in as little as five months. TAQA has so far spent $7.5 billion - $5 billion for PrimeWest, $540 million for Pioneer Canada in August and $2 billion in May for Pogo Producing’s (PPP) Northrock Resources unit. Management indicated in their conference call on Monday that they intend to have $20 billion invested in Canadian assets by 2012. While we believe the company will have to back away from the table to digestwhat it has already acquired in the short term, TAQA could be back as an acquirer of other royalty trusts in the next 12 months. Canaccord Adams Royalty Trusts and Income Funds Analyst Bruce McDonald says the PrimeWest acquisition value is more of a one-off bid and does not reflect industry pricing, but it does support the argument that there are potential buyers for royalty trusts and helps support a floor price to valuations. The Globe & Mail said that the reality is TAQA has a lower cost of capital, andlower return expectations, than conventional rivals. As long as that situation persists, TAQA is going to be a force in the Canadian oil & gas patch. Could Canadian Oil Sands Trust (COS.UN) be next?
Monday Sep 24, 2007 wed1334
At the top of today’s business news is the announcement that Abu Dhabi National Energy Co., the state-controlled power generator and oil producer, agreed to buy Canada’s PrimeWest Energy Trust
for about $4 billion in the biggest-ever North American takeover by a
United Arab Emirates company. We cannot help but connect the dotted
lines to the decision of the Conservative government to go ahead with
Bill C-52 without the amendments requested by the Canadian Association of Income Funds (CAIF).
The ramifications of this story will certainly figure in Wednesday’s debate whereupon Margaret will change hats.
Tuesday 11 September 2007 INCOME TRUSTS
CHIP REIT (HOT.UN) Pro Rated Distribution: In accordance with purchase agreement to acquire all the outstanding units and debentures of CHIP REIT by the BC Public Workers Pension, the Trust is paying a prorated distribution of $0.05387 per unit (record holder date of September 20, payment on September 25). The purchase agreement is to purchase the units of the Trust for $19.10 cash and the 6% debentures for $1,625.53/debenture in cash (plus accrued and unpaid interest).
Thursday 05 July 2007 rci TORONTO: IPOs DOWN BECAUSE OF INCOME TRUST CHANGE
The PricewaterhouseCoopers investment firm reports that numbers and value of Initial Public Offerings plummeted in the first half of the year, chiefly because of the Canadian government's changes in how income trusts are taxed. IPOs raised $855 million in new equity in the first half, down 79 per cent from the same period a year before. Thirty-seven IPOs were offered in Toronto, compared with 57 a year earlier. The investment firm says "...the momentum of income trusts [is] gone." The markets for IPOs sagged in the last quarter of 2006 after Ottawa announced that new income trusts would be taxed at the same rate as corporations.
Thursday 26 April 2007 Dion wrong on trusts
Tax changes never win applause from people who lose tax advantages, even when such advantages are considered to be patently unfair.
Tuesday 13 March 2007 NBF YELLOW PAGES INCOME FUND (YLO.UN) $13.48 – REVIEW OF ALIANT DIRECTORY SERVICES PURCHASE AFTER COMING OFF RESTRICTION. RATING: OUTPERFORM. TARGET: $14.50. RISK RATING: LOW. INDUSTRY RATING: MARKET WEIGHT.
YPG announced on Feb. 19 that it was acquiring 87.14% of Aliant Directory Services (AliantDS) for $330 million from Bell Aliant Regional Communications Income Fund – YPG already owns 12.86% of AliantDS and has served as its managing partner. Synergies are expected to be limited to an estimated $1.8 million associated with YPG’s supply-chain management efficiencies. The full takeout of AliantDS adds the Maritimes to YPG’s virtually national monopolist footprint in Canada with the only geographic hole represented by Saskatchewan where SaskTel doesn’t appear to be a seller in the near term. Our target is based on our DCF and EV/EBITDA multiples of 12x 2007E and 11.5x our 2008E. On average, the peer group trades at EV/EBITDA multiples of 10.4x 2007E and 9.9x 2008E.
FAIRBORNE ENERGY TRUST (FEL.un) $9.02 – REUNITING WITH AN OLD FRIEND. RATING: SECTOR PERFORM. TARGET: $10.00. RISK RATING: ABOVE AVERAGE. INDUSTRY RATING: UNDERWEIGHT.
Fairborne announced that it would acquire Fairquest Energy, for $197 mln in trust units and assumed debt. Fairquest was originally spun out from Fairborne Energy in June 2005 with the creation of Fairborne Energy Trust. With the deal, Fairborne moves to a lower distribution model (45-50%) with a $0.09/unit distribution (was $0.13/unit) beginning with the March payment (we had previously assumed a cut to $0.10/unit in Q2). We are largely neutral on the deal – reserves (+2.4%) and NAV (+7.6%) accretion is offset by production (-3.1%) and cash flow (-1.4%) dilution. We believe the acquisition puts Fairborne in a better position to convert back to the corporate structure in four years if trusts are forced to pay tax. We are neutral on the deal from a financial perspective, and our estimates remain largely unchanged, we maintain a $10.00 target and Sector Perform.
OIL & GAS INCOME & ROYALTY TRUSTS: – P/CF AND P/NAV CURRENT MUTLIPLES VS. HISTORICAL TRENDS
As a follow-up to our comment yesterday, comparing P/CF and P/NAV multiples between the Oil & Gas Trust and E&P sectors, Part II of our valuation series today looks at current P/CF and P/NAV valuations versus historical trends. We extend this analysis to an individual look at each trust. The Oil & Gas Trust sector is currently trading at 1.2x P/NAV (after-tax), in line with the historical lows in late 2002 and well below the 1.5x historical average. Meanwhile, the sector is currently trading at 5.7x P/CF, again below the 6.1x historical average since 2000 – although multiples have rebounded following the initial panic reaction post the Oct. 31, 2006 announcement of the new tax on income trusts. Valuation multiples for our top picks, Focus (FET.un), Progress (PGX.un), Vermilion (VET.un) and Canadian Oil Sands (COS.un) are below historical averages – particularly on a P/NAV basis. In most cases, these trusts are trading at group average multiples, which is unwarranted given the premium nature of these trusts (among the best growth/lowest declines and highest rates of return in the sector). Further, the discounts on our higher risk/reward picks, Canetic (CNE.un) and Shiningbank (SHN.un) are evident and in our view, too punitive, given the improving go-forward prospects for both trusts.
Friday 02 February 2007
Security detail minds Flaherty after income trust threats
Finance Minister Jim Flaherty has been issued a protective detail after receiving death threats over his government's decision to tax income trusts.
globe Extra security measures protect Flaherty
....It prompted a selloff that undercut the trust sector's market value by more than $20-billion, sideswiping investors' retirement savings.
Budget won't include family income-splitting: sources
The Conservative government has ruled out income-splitting for families in its upcoming budget and will focus instead on tax cuts for individuals and businesses, The Canadian Press has learned.
Wednesday 31 January 2007
No change on income-trust decision, says finance minister
Finance Minister Jim Flaherty defended on Tuesday his government's decision to tax income trusts by arguing Canadian taxpayers would have had to start covering the loss of more than $1 billion a year in government tax revenues to the popular security as early as this spring.Tuesday 30 January 2007 RBC News
Flaherty more determined that trusts cause tax leakages. Federal Finance Minister Jim Flaherty, ahead of the parliamentary hearing Tuesday, suggested that trusts may be costing Canada as much as $1.3 billion annually in lost tax revenue, far more than the “conservative estimate” he provided last fall. “The more I look at this — and I spent a good part of the weekend reviewing it again — I am more convinced than ever that this was the right decision,” he said in an interview as Parliament resumed sitting Monday following a winter break.
Trust tax loss could top $1-billion: Flaherty
Extending grace period for existing trusts would be costly and unfair, Flaherty says
ts Seniors forgotten on income trusts
In today's G&M’s, article on Flaherty and Trusts...apparently they will be providing their analysis, which the article appears to indicate that the Feds are NOT taking into consideration taxes that will eventually be paid by tax-deferred investors. An excerpt: Mr. Flaherty will release a special report on Tuesday detailing how Ottawa calculated tax leakage, the overriding premise behind the new tax. This is a long-standing request of income-trust lobbyists, who argue Finance should be required to subject its calculations to public review. He said he believes his testimony will help “reconciliation” on the matter. “In the longer run I really don't doubt that people in Canada will accept the need for the decision having been taken when it was.” Mr. Flaherty said he expects criticism of Finance's estimates, including the charge that Ottawa is not counting tax revenue it will receive on RRSP withdrawals “15 or 20 years” later. “My answer to that is going to be quite simply that my job is to deal with the obligations of the government today, to pay the benefits that we pay and to transfer the money to the provinces that we transfer now, not 20 years from now,” he said.
Thursday 18 January 2007 TORONTO: WHITE ROCK PRICE HIGHEST IN MONTHS
Whiterock Real Estate Investment Trust units touched their highest price in nine months on Wednesday. The rise followed news that the owner of office, industrial and retail properties announced it is looking for a buyer or merger partner. Whiterock units traded as high as $15.20 in early trading on the Toronto Stock Exchange. Later they gave up some of their gains and were at $14.60, up 51 cents or 3.6 per cent at midafternoon. The trust's units have rarely risen above $14.50 since they began trading in July 2005, except for a single day in April 2006 when they hit $15.88 in intraday trading. Whiterock's decision to put itself on the block comes at a time when property prices have continued to rise and demand for North American real-estate companies is strong.
Monday 15 January 2007 OIL & GAS INCOME & ROYALTY TRUSTS: REVIEWING DISTRIBUTION SAFETY AGAIN!
Last Thursday (Jan. 11, 2006), in perhaps a surprise move, Focus cut its distribution and also moved toward the lower end of its capex guidance citing weaker commodity markets and a desire to preserve the longer-term sustainability of its model – perhaps a sign of things to come in the sector over the next couple months if commodity weakness continues and particularly as many 2007 capex budgets are premised on much higher prices than current prices suggest. What has us particularly concerned is unabated U.S. gas drilling rates, which along with U.S. gas production has showed no signs of slowing. Combined with lower demand from the warmer winter, very little dent has been made in U.S. storage levels through the winter. Which trusts could be next? Under our current 2007 commodity outlook (US$55/bbl WTI and Cdn$7.45/mcf AECO), we forecast monthly distribution cuts from Canetic (0.23/unit to $0.20/unit in Q2 2007), Fairborne ($0.13/unit to $0.10/unit in Q2 2007), Pengrowth ($0.25/unit to $0.22/unit in Q3 2007) and Shiningbank ($0.23/unit to $0.20/unit in Q2 2007). However, further commodity weakness below our price deck would also put distribution levels for Advantage, Trilogy and Vault under pressure, largely owing to higher debt levels. Overall, we are maintaining our small cap bias. They have outperformed once normal growth terms of the tax on trusts were released in mid-December and we expect them to continue to catch up as they were the most oversold post the Oct. 31, 2006 tax announcement. For balanced or oil-weighted exposure, we suggest Freehold (FRU.un) and NAL (NAE.un). For natural gas exposure, our top picks are Focus (FET.un) and Progress (PGX.un). Meanwhile, higher risk/reward picks include Canetic (CNE.un), Shiningbank (SHN.un) and Trilogy (TET.un) – potential distribution cuts on these three names appear to be priced in.
2006
2006-12-29 money Income trusts
Sudden taxation of income trusts named CP-BN Business Story of the Year
27/12/06 Income trusts in for a rocky 2007
Takeovers and consolidation will be common themes next year as industry copes with looming tax changes
Ottawa, December 21, 2006 Canada’s New Government Releases Draft Legislative Proposals to Implement the Distribution Tax on Income Trusts and Partnerships
The Honourable Jim Flaherty, Minister of Finance, today released draft legislative proposals to implement those aspects of the Government’s Tax Fairness Plan dealing with income trusts and other flow-through entities.
Thursday 21 December 2006 CALGARY: ENERGY TRUSTS RESIST FEDERAL TAXATION CHANGE
Energy trusts continue to argue that they should be exempt from the federal government's decision to tax all trusts at the same rates as corporations. The Coalition of Canadian Energy Trusts presented its latest arguments on Wednesday in a position paper meant for the government, which it says has proceeded in an uninformed way. The paper tries to refute the government's rationale that the trusts are causing a loss of federal taxes because trusts pay little or no tax, their revenues passing directly in "distributions" to their "unitholders." The Coalition maintains that its members generate 30 per cent of federal taxes collected from the oil and natural gas sector, contending as well that they indirectly generate more tax revenue to all levels of government than energy corporations. The energy trusts have been arguing as well that they should receive an exemption because they develop "mature" assets that don't interest corporations.
16/12/2006 Guidance Provided on “Normal Growth” for Income Trusts and Other Flow-Through Entities
The Department of Finance brought down a minimalist set of guidelines on growth rules on Income Tusrs last night. Here is the link. We will be reacting strongly as this in no way mitigates against the long term damage that has been done to the investor and most particularly, to the small and mid sized business in Canda which are now denied access to capital markets and has created an unprecedented buying opportunity for private equity to take out the infrastructure trusts and the vibrant small and mid cap sector of the Canadian economy.
See: Trusts can double in size
'Better than anticipated': Can also merge, convert without tax consequences
. .." The Finance Department announced guidelines yesterday under which existing income trusts will be allowed to double their size between now and 2011. They can also merge with other trusts without consequence and transform into corporations without triggering a tax burden for investors."
Wednesday Dec 13, 2006 BCE drops its income-trust plan
Hikes dividend. Telephone giant sets ambitious new growth targets ...boosted its annual dividend by 11 per cent and set ambitious new growth targets based partly on the federal government's plan for a more flexible regulatory climate.
Saturday 09 December 2006 A survey of business executives indicates that more than one-half of those asked think that the number of income trusts remaining will have dropped from 256 to fewer than 50. Respondents were reacting to the federal government's decision announced in October to start taxing the trusts as corporations starting in 2011. Existing trusts have a four-year exemption. But the executives polled predict that certain additional provisions affecting their growth will force some trusts to forgo the exemption and reconvert to corporate status. Fifty-five percent of respondents to the Deloitte Touch accounting firm poll didn't believe that Finance Minister Jim Flaherty's unexpected decision regarding the trusts had damaged the credibility of Canadian capital markets
2 Dec 2006 Tory income trust policy is flawed:
Taxing trusts will not lead to tax fairness (Diane Francis, National Post)
On October 31, 2006 the Minister of Finance announced proposed changes to the way that income trusts are taxed. CAIF believes this decision was a mistake. The Canadian Association of Income Funds is responding to proposed Federal legislation on how income trusts will be taxed and encourages investors to do the same.
Income Trusts are a vital form of saving for millions of people in this country.
CAIF urges Canadian investors to take action to help prevent this proposed legislation from becoming a reality. To learn more about more about the income trust issue, click here.
goto pengrowth.com/ then Go to webcast multimedia under Index
Monday 04 December 2006 Pengrowth Energy Trust Announces Extension of Its Offer to Purchase Outstanding Convertible Debentures
Thursday 30 November 2006
OTTAWA: ENERGY SECTOR WON'T GET TRUST BREAKS
Canadian Finance Minister Jim Flaherty says the country's energy sector won't receive exemptions from the new taxation rules governing income trusts and that they will be taxed as corporations as planned. The ministry made the statement late Tuesday after a meeting with executives of energy firms who argued that their sector deserves exemptions. However, Mr. Flaherty says he's willing to discuss the implementation rules and that those discussions have already begun. The minister says he hopes to have them ready by Christmas. On Oct., Mr. Flaherty announced that income trusts will pay federal taxes just as corporations do. Income trusts were paying little or no federal tax, passing on instead "distributions" to "unitholders," who then pay tax to Ottawa. The minister argued that the practice had to be stopped because a great part of the federal tax burden was gradually being transferred from corporation to individual taxpayers. Existing income income trusts will enjoy a four-year transition period before the new rules come into effect for them.
Best of show
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Wednesday 22 November 2006
MONTREAL: YELLOW PAGES WANTS FAIRNESS FOR TRUSTS
The CEO of one of Canada's biggest income trusts, Yellow Pages Income Fund, says he hopes the federal government will be fair in drawing up the temporary rules governing trusts during the coming four-year transition period. Marc Tellier says the new regulations must support the existing trusts rather than hamper their growth. On Oct. 31, federal Finance Minister Jim Flaherty announced that future income trusts will be taxed at the same rate as corporations, but that existing trusts will enjoy a transition period. Income trusts pay little or no corporate tax, paying instead "distributions" to "unitholders," who then pay federal tax. The government rationale for the change is the avoidance of a massive and unfair transfer of taxation to individual taxpayers. Mr. Tellier says the government must not force the existing trusts to convert themselves into corporations if they make acquisitions and must be permitted to issue stock as they see fit. Yellow Pages is the country's biggest producer of print and online telephone directories.
Sunday 19 November 2006 Trusts vow to keep fighting tax plan
Canadian Association of Income Funds says change will destroy their ability to access capital and stifle growth
Saturday 18 November 2006 CALGARY: DISAGREEMENT ABOUT WHETHER DUST HAS SETTLED OVER TRUSTS
A federal cabinet minister claims that the operators of energy trusts have got over their dismay about the government's decision to tax them just as corporations are, but there are indications this may not be entirely so. Jim Prentice, the minister of Indian affairs, became the first minister to visit Calgary, AB, the country's energy hub, since the decision was announced on Oct. 31. He told an audience of business and aboriginal leaders on Friday that the trusts are "moving on" to the process of the four-year transition during which existing trusts will be taxed in the same way. Mr. Prentice says the oil and gas trusts are getting on with their business. Sue Riddell Rose of Paramount Energy Trust and a member of the newly formed Coalition of Energy Trusts begs to differ. She met with the minister with other executives on Thursday. She says the executives told him forcefully that they don't accept the situation and that their intentions were clear. The government maintains that unless the trusts their fair share of taxes, the ordinary taxpayer will have to assume a higher tax burden. The trusts contend that they finance the exploitation of mature oil and gas deposits that the bigger energy firms ignore, thus accounting for one-fifth of the country oil and gas output.
Sun 12/11/2006
Democracy watchdog growling over Tories' flip-flop
A national advocacy group has launched a formal complaint against Prime Minister Stephen Harper and Finance Minister Jim Flaherty for reversing an election promise not to tax income trusts.
Friday 10 November 2006 Canadian Finance Minister Jim Flaherty has reiterated his position that there will be no exception to his proposed taxation regulations for income trusts, which he unveiled last week. He said on Tuesday that he had met or spoke by telephone with several parties who requests such exemptions but that his policy is unalterable. One of those he met with was James Kinnear, CEO of Pengrowth Energy Trust, who didn't offer information about the meeting. He's a member of the newly formed coalition of oil and natural firms that is seeking exemptions. Trust executives met the minister just hours before the House of Commons voted 184 to 82 to endorse a motion to present Mr. Flaherty's trust taxation changes.
Monday Nov 6, 2006
There are those among us who, despite Don MacDonald's column in today's Gazette, think that Income Trusts are still THE story.
Monday 06 November 2006
Energy industry pressure forced income trust action
Mounting investor pressure on oil and gas companies including energy giant EnCana Corp. to convert structures forced Ottawa's tax clampdown on income trusts, the parliamentary secretary of finance said Saturday.
Income Trusts
It was a bold experiment, in retrospect, bound to fail as it had in Australia, but income trusts were a unique (currently existing only in Morocco and phased out here), popular instrument. For the government, it had been intended to be at least, revenue neutral as net revenue was not taxed at the corporate level, but more fully taxed at the presumably higher personal level. When implemented, plans frequently take on a life of their own and in this case the ever-increasing interest in Income Trusts by foreign investors (some $45 billion) yielded to the federal government, a mere fifteen percent in withholding tax and zero from pension funds holding income trust units. In addition to the real estate and mature exploration companies for whom the Income trusts were originally designed, large corporations adopted the model and exacerbated the problem. The inevitable tax changes have occurred or will be phased out over four years, undoubtedly with the hope on the part of the Conservative government that unit holders will have gotten over the pain by the next election.
[Editor's note: for those who are somewhat confused by all the fuss, the CBC Website has an excellent summary of the issues at: cbc
Saturday 04 November 2006 rci VANCOUVER: TELUS STOCKHOLDERS WON'T LOSE IF CONVERSION DROPPED
Telus Corp., Canada's second-biggest telephone firm, says its shareholders won't be out of pocket if the company is forced to abandon its plan to convert itself into an income trust because of the federal government's changes announced Tuesday to how they are taxed. "Unitholders" of income trusts will henceforth be taxed as the same rate as corporate shareholders. Telus said on Friday that it's disappointed with the "lack of consistency" of the taxation environment. During last winter's national election campaign, the Conservative Party which won promised not to touch income trusts. Telus promised shareholders on Friday that they won't lose out if the income trust plan is dropped, because they'll receive just as much return on their investments from higher corporate dividends and share repurchases. The firm says it earned $319.6 million in the quarter ending Sept. 30, compared with $190.1 million in the quarter ending a year ago.
Saturday 04 November 2006 rci CALGARY, OTTAWA, TORONTO: ENERGY TRUSTS SEEK REPRIEVE
The Globe and Mail newspaper reports that several top executives heading energy trusts in the energy-producing province of Alberta will pay a visit to the capital to seek an exemption from the new taxation rules imposed on income trusts. According to The Globe, one of them is Bill Andrew, CEO of Penn West Energy Trust, who will likely be joined by John Dielwart of ARC Energy Trust and Jim Kinnear of Pengrowth Energy Trust. Mr. Andrew says he'll try to convince the federal government that energy trusts based in Calgary are positive both for his province and the entire country because they fund marginal oil and natural gas projects that would otherwise be ignored, working them more efficiently and extending their lifespans. He also notes that revenue from them forms the core of royalties paid the provincial government. A spokesman for federal Finance Minister Jim Flaherty told The Globe that he doesn't plan any other exemptions than the four-year transition period for existing trusts which he mentioned on Tuesday.
Friday 03 November 2006 Income Trusts and REITS
Over the past two days, the market cap of income trusts declined almost $43 billion, or 16%, while the average yield for the trust sectors has increased 170 bps to 11.2% from 9.5%. Top 30 trust decliners and top 30 gainers are listed in the report. Largest decliners: Drive Products (DPI.UN) -35.6%, High Arctic Services (HWO.UN) -29.3%, Contrans (CSS.UN) -29.3%, Avenir Diversified (AVF.UN) -29.3%, Essential Energy Services (ESN.UN) -29.1%, Liquor Stores (LIQ.UN) -27.8%. Largest gainer TimberWest (TWF.UN) +2.6%
Conventional Oil & Gas Trusts - Adjusting Our Estimates and Targets
Under the Federal proposal, the trust income tax rate is 31.5%; federal tax (18.5%) and an allocated provincial rate (13%). The Alberta Provincial corporate income tax rate is expected to decline, reducing the combined corporate income tax rate from 28.5% to 26.5%. There is clearly a potential for Provincial corporate tax arbitrage in 2011 through trust “unconversions”. RBC CM assumed a tax rate of 20% of cash flow, which assumes that the “trusts” (which will likely consider becoming corporations) have some tax shelter (though actual details are very limited). We have also shown an effective tax rate of 15% for sensitivity purposes. The future tax implications for the oil and gas trusts translates into an average reduction to target prices of 13%. In general, longer life trusts experience a larger impact from future taxation versus the shorter life trusts. Shorter life trusts will realize a greater portion of cash flow in the pre-tax era under a blowdown scenario. Investors must remember that with each passing year the implications of the tax levy will increase and the cash yield will need to increase to compensate for declining unit value estimates until they equate to the full after-tax values.
Based on the implied total returns, Freehold (FRU.UN), Crescent Point (CPG.UN), NAL Oil & Gas (NAE.UN) and Peyto (PEY.UN) look attractive relative to the group. Conversely, PrimeWest (PWI.UN), Progress (PGX.UN), Advantage (AVN.UN) and Shiningbank (SHN.UN) look expensive relative to the group.
TORONTO: INCOME TRUSTS CALLED BAD FOR PRODUCTIVITY
Canadian Finance Minister Jim Flaherty says that one factor in his decision to tax payouts to "unitholders" in income trusts was their effect on industrial productivity. He told The Globe and Mail newspaper that the structure of an income trust put pressure on corporate executives to distribute all profits to "unitholders" instead of reinvesting them in research and development. The minister says the trust model is an unhealthy one for competitive, capital-intensive corporations, as well as being incompatible with the productivity gains he would like to see at Canadian corporations. Under the change announced on Wednesday, payouts to unitholders will be taxed at 34 per cent. Despite the minister's affirmations, The Globe also cited several corporate experts who played down the effect of the income trust model on productivity.
Restaurant Trusts – Adjusting Valuations and Target Prices to Reflect the Tax Measures
RBC CM is now treating trusts within the coverage universe as corporations that have a four-year tax holiday and have reduced its target prices to reflect the new 31.5% tax, which will begin in 2011. On average, target prices come down by approximately 15% for the restaurant trust group, and over the coming weeks RBC CM will revise and update valuations as more information with respect to tax pools become available. Interesting Relative Value: Keg – given its less-competitive landscape, recent sales growth and concentration in Western Canada, Keg is currently favoured. Trusts that Appear Expensive: Priszm – After the announcement, Priszm’s unit value declined by roughly 10%, one of the lowest declines in the sector as investors seemed to take respite in the company’s announcement of significant tax shields. RBC CM believes that on a longer term the tax shields cannot be maintained, and the market is not accurately reflecting Priszm’s belowaverage growth rates and highly competitive environment.
Treasure hunters mine the trust bust
Sector has lost 16% in two days. Investors advised to go back to basics: 'Buy real businesses at reasonable valuations'
DON MACDONALD, The Gazette
Published: Friday, November 03, 2006
Smart shoppers were sorting through the income-trust bargain bin
yesterday after another dismal day brought the two-day mark down on the
trust sector to more than 16 per cent.
Professional investors
said they were seeing some interesting deals in the wake of this week's
federal announcement that existing trusts will have to pay tax starting
in 2011. But they warned adventurous small investors to do their
homework and stick to the highest quality trusts.
"The
blood-letting will be over by the end of the week," said William
Kovalchuk, president of Claret Asset Management. "Now is when you're
seeing the bargains."
Kovalchuk has been picking up some
beaten-down business income trusts this week for clients of his
money-management firm, including Yellow Pages Income Fund, Wajax Income
Fund and Genivar Income Fund.
He said investors should go "back to basics: You want real companies, with real businesses at reasonable valuations."
The
prospect of a big tax hit in 2011 will put pressure on poorer quality
trusts that are already having trouble meeting their cash
distributions. The corporate tax bill for trusts will go from zero
today to 31.5 per cent.
The tax hit will be particularly onerous
for foreign investors who will see their tax bill on trust
distributions effectively rise to more than 40 per cent from the
current 15 per cent.
Americans are big investors in energy trusts
and were clearly dumping stock yesterday, sending energy trusts down 18
per cent over the last two days.
Sebastian Van Berkom, a Montreal
money manager, doesn't like energy trusts, but does think it's a good
time for income-oriented investors to buy the highest quality business
trusts.
He said the goal should be to find trusts with stable and
growing cash flow so that by 2011 they will be able to cover the new
tax bill and still maintain their distributions to investors. Trusts
with high debt loads are to be avoided.
"For anyone who needs
yield, it's a fantastic time to be looking at these things," said Van
Berkom, whose firm specializes in small capitalization stocks. "Just
make sure the distributions can be maintained."
Van Berkom's firm owns CML HealthCare Income Fund and he found it was trading at an attractive price.
Ross
Healy, president of Strategic Analysis Corp., struck a more cautious
note. He said the drop in income trusts had brought the sector to fair
value given the implications of the new tax. He described the valuation
level as: "who cares?"
"If the market stabilizes too early and
too high what you will get is a steady downward drift as you get closer
to the 2011 break point," said Healy, whose firm advises institutional
investors.
If the trust market was to drop by between 20 and 25 per cent "then you get a chance for a decent rebound."
Healy,
a longtime trust critic, added that Ottawa's move doesn't change
"wild-west accounting" and faulty corporate governance at many trusts.
As well, most of the trusts have yet to be tested in the crucible of an
economic recession, he noted.
dmacdonald@thegazette.canwest.com
© The Gazette (Montreal) 2006
Promises are good politics
But sometimes they become bad policy. Conservatives are betting they can get away with taxing income trusts at next election
ERIC BEAUCHESNE, CanWest News Service
Published: Friday, November 03, 2006
The Conservative government's breaking of its election promise not
to tax income trusts is of the same order as the Chretien Liberal
government's reneging on its promise to scrap the GST more than a
decade ago, even if its impact is of a greater magnitude.
And the
Harper Tories are betting that, like the Chretien Liberals who won
additional majority governments after breaking their GST promise, they
can get away with it at the polls.
Both promises were good
politics, helping the Liberals win election in 1993, and the
Conservatives win this year, but both were bad policy.
Most analysts, including those in the department of Finance, agreed the GST is, relatively speaking, a good tax.
Unlike
the hidden manufacturers' sales tax it replaced, the GST was visible,
unlike income taxes it didn't discourage work and investment, it was a
reliable generator of revenues and it was constructed with rebates to
cushion its impact on the poor.
That, however, didn't stop the
Liberals from promising in writing, and in a verbal commitment by their
leader Jean Chretien, to scrap the tax. But it did stop them from
carrying through on that promise.
Similarly, the Conservatives
were well aware during the last election campaign that many analysts,
including those in the department of Finance, were warning the
escalating trend of corporations converting into tax-free income trusts
was threatening both the economy, because it discouraged them from
reinvesting their profits in the business, and governments, because it
was robbing them of hundreds of millions of dollars a year in corporate
tax revenues.
That, however, didn't stop the Conservatives from
promising in writing, and their leader Stephen Harper verbally, to
never tax trusts.
It did, however, stop them from keeping that
promise, as thousands of investors, many of them elderly, were shocked
to learn this week.
But the impact of the two broken promises differs greatly.
The
Liberals' broken GST promise had a much broader impact, hitting all
Canadians, but for most it was merely an annoyance. No one lost a chunk
of their life savings paying the GST.
The Conservatives' broken
promise is having a much narrower impact on Canadians, generally being
limited to those with investments in income trusts.
But the
magnitude of its impact on some of those investors has been severe,
wiping out billions of dollars in the value of income trust investments
in one day, losses that run well into the tens of thousands of dollars
for some seniors.
Finance Minister Jim Flaherty, however, in
breaking one tax promise made another, offering seniors special tax
breaks to cushion them against losses on their income trust investments.
The
structure and timing of those tax breaks, however, were clearly
designed to cushion the government against the wrath of seniors.
The
benefit of the $1,000 a year increase in the seniors credit, which
kicks in this year, will show up on the tax returns of the elderly in
the spring, just when many analysts expect the minority Conservative
government could be facing an election.
Meanwhile, senior couples
have been promised that if the Conservatives remain in power they can
start splitting their pension incomes next year, giving them an added
incentive to swallow their anger over the broken income trust promise.
© The Gazette (Montreal) 2006
Tories right this time about income trusts
The Gazette
Friday, November 03, 2006
Late in the 1974 election campaign, Prime Minister Pierre Trudeau
zapped a heckler in Peterborough, Ont. Mocking the Progressive
Conservatives' plan to freeze wages and prices to control rampant
inflation, Trudeau called out "Zap! You're frozen!" That summer, voters
rejected Robert Stanfield's proposed freeze and Trudeau's Liberals won
a new majority. The next year, with inflation still sizzling, Trudeau
imposed precisely the freeze he had campaigned so hotly against.
That
legendary policy flip-flop met its match this week. Conservative
Finance Minister Jim Flaherty performed an equally shocking about-face
Tuesday when he zapped corporate income trusts.
A year ago,
Stephen Harper, then opposition leader, denounced the Paul Martin
government's "reckless" consultations on income trusts, seeing a
"Liberal government attack on investors, and especially on seniors."
The Conservative platform in last winter's election promised no new
taxes on income trusts.
That was then, this is now. The explosive
growth of income trusts should not have surprised the Conservatives;
given the impressive tax advantages of the income-trust model, the only
real surprise is that a mere 11 per cent of corporate Canada's market
capitalization - about $200 billion - has made the move already.
Things
look different, they say, when you're in power. But as Canadians get
over our collective anger about a promise broken, the country will
recognize that on this issue the Tories were wrong a year ago, and are
right now.
Many Canadians - and not only those who have lost
money since Tuesday - are angry: Was last year's Conservative bombast
about trusts cynical, or foolish, or both? By rejecting any moves
against income trusts in such a categorical way, the Tories fuelled the
very fire they were forced to douse this week. Investors and companies
that jumped, or were about to jump, on the income-trust bandwagon have
every right to feel duped by their own government.
But Canadians
should also realize that this time, at least, Harper and Flaherty have
done what had to be done. And their artful sugar-coating of the pill
for seniors should help the medicine go down smoothly. So will the
quiet satisfaction of provincial governments, which were also
hemorrhaging tax revenue as the trust tsunami grew.
There have
always been serious questions about income trusts. Corporations exist
to make profits, and most exist in a state of healthy tension about how
to use earnings: pay the money out to shareholders, or reinvest in
making the business bigger and better? In too many cases, income trusts
tilted that balance away from reinvestment. That's fine in some cases
but a recipe for trouble in high-tech sectors that reward research and
development. With BCE and Telus planning to convert, and even the big
banks said to be interested, the trend was becoming a stampede.
Corporate
directors and managers should be making decisions on the basis of
fundamental business considerations, not twisting their companies out
of shape simply to score tax savings. Corporate Canada today has vast
regiments of tax experts on handsome salaries who do nothing but
navigate the swamps, shoals and quicksand of a tax system grown
hopelessly complicated. Governments need corresponding regiments of
accountants, lawyers and auditors of their own. True simplification of
corporate taxes would free up all those people for productive work.
Supporters of the income-trust model have painted the trusts as
refuges for seniors, and this has been true for more prosperous seniors
with substantial investments. But in an age when we hear so much about
"intergenerational equity" - how our children will have to pay at least
the interest on the public debt rung up in the last 50 years - not
everyone will see the abolition of this huge tax shelter as unfair. And
single seniors get a break, too, through an increase in the seniors tax
credit. At least one seniors' organization has endorsed the package.
Perhaps
that was because the new measures Flaherty announced Tuesday promise to
do more over time for more seniors, than income trusts have done.
Income
splitting, at least for seniors, is certainly an idea whose time has
come, one that will provide big savings for one-income couples. If a
couple can pay tax on their average income, rather than on one higher
and one lower income, they will save money every year. Eventually,
governments will be pressed to expand this concept.
Taken all
together, Flaherty's Halloween surprise adds up to sound public policy.
And this government, unlike our last one, had the discipline to avoid
public dithering. Nothing leaked. Now, as financial markets pick
themselves up, trusts will have a four-year notice period to resolve
their problems. The balance between corporate and individual tax
burdens will be maintained. Seniors' interests are defended. Breaking
an unwise campaign promise can sometimes be the right thing to do -
even if this government took such a twisted route to get there.
© The Gazette (Montreal) 2006
Harper takes a hit
Although his income trust decision was the right thing to do, the PM looks like just another politician breaking his promise
L. IAN MacDONALD, The Gazette
Friday, November 03, 2006
The prime minister's job is to uphold what Stephen Harper has called
"the long-term interests of the country," even at political cost in the
short term.
Harper's flip-flop on income trusts is a prime example. As
opposition leader a year ago, he hounded the Liberal government
practically on a daily basis for halting tax rulings on companies
converting to high-yield income trusts, demanding Paul Martin assure
investors that trusts "are here to stay."
Relentless pressure from the Conservatives, along with an investor
revolt on both Bay St. and Main St., forced the Liberals to relent,
days before their defeat in the House. The leak of the botched
announcement led to the holiday headline, "RCMP criminal probe" that
sealed the Liberals' fate in the campaign.
In his campaign platform, Harper specifically pledged to "preserve income trusts by not imposing any new taxes on them."
Seldom has a campaign promise been so spectacularly broken as this
one was after the close of markets on Tuesday, when Finance Minister
Jim Flaherty announced a tax on distributions at the front end to
recoup lost corporate tax revenues due to lower retained earnings.
On Wednesday, the Toronto Stock Exchange had its worst day in two
years. The income- trust index lost $23 billion in market value in a
single day. Bell Canada Enterprises, which had recently announced its
intention to convert to a trust, lost $3.5 billion in market value.
(The markets, however, bounced back a bit yesterday.)
Bell's recent announcement it was converting to a trust structure,
following the lead of Telus, was clearly the tipping point. Both
Flaherty and Harper said at the time they were following the situation
closely. No one then realized just how closely.
In the long-term interest of the country, Harper did the right
thing, levelling the playing field between corporations and trusts, and
ensuring a higher proportion of earnings is reinvested, particularly in
R&D.
In the short-term political interest of his minority government, the
Harper brand has taken a major hit on integrity. His entire positioning
was that he was new and different, that he would do what he said he
would.
Well, he's not new and different anymore. He's just another politician, breaking a promise.
And he broke it with two core Conservative constituencies, senior
citizens and the financial community. Retirees, who count on monthly
distributions to supplement their pensions, took a huge hit on the
value of their investments. Some might have gone into income trusts on
the specifics of Harper's broken promise.
As for the markets, there's only one thing they hate more than
uncertainty, and that's the rules changing in the middle of the game.
It would have been one thing if Flaherty had allowed Bell and Telus to
go ahead by grandfathering them out of the new tax rules, as even the
NDP was suggesting. It's quite another to tell them that although they
played by the rules, the rules were changing retroactively.
This isn't really about tax treatment - Ottawa's revenue leakage was
in the hundreds of millions of dollars in a fiscal framework flush with
billions in surplus cash. It's about the country's two largest phone
companies, in the R&D intensive telco sector, joining the rush to
what was becoming, in Flaherty's alarmist turn of phrase, "an
income-trust economy."
With a major oil company and a bank rumoured to be joining the trend
to trust conversion, Harper and Flaherty evidently decided after the
Bell announcement that the time had come for Ottawa to step in.
In process terms, the secrecy held, and no one in the markets saw it
coming. It was a very professional job. In packaging terms, the Tories
spun the announcement as making corporations pay their share of taxes
rather than putting additional demands on the shoulders of working
Canadians. For good measure, they threw in income splitting for
seniors. In political terms, in the House, the Conservatives carried
the day, with the NDP and Bloc Quebecois supporting the move. Only the
Liberals, who can't claim the moral high ground on this, shouted about
"black Wednesday" and a "day of infamy." And Flaherty, in his best
Jimmy Cagney manner, blew them off.
But the larger political question is whether Harper has lost the trust of voters who took him at his word on income trusts.
www.lianmacdonald.ca
© The Gazette (Montreal) 2006
Thursday 02 November 2006 BCE and Telus battered by trust worries
Stocks hammered by a double digit fall after government changes stance on income trust taxation
Thursday 02 November 2006 maisonneuve.org MATTERS
OF TRUST
The
National, CTV
News, the
Globe, the
Star and the
Post lead, while La Presse (not available online) and the
Citizen go inside with the fallout from Finance Minister Jim
Flaherty’s announcement that the federal government will begin taxing
income trusts. According to a separate piece in the
Star, Flaherty’s surprise announcement led to a $24.5-billion tumble
in market value on the Toronto Stock Exchange yesterday, with the income
trust sector as a whole losing $20 billion and trust candidates BCE Inc.
and Telus Corp. losing a combined $4.5 billion in shareholder value. The
fallout naturally made its way into the House of Commons as well, reports
the
National. Acting Liberal leader Bill Graham described the government’s
decision as an “economic bloodbath,” while former finance minister John
McCallum called on Prime Minister Stephen Harper to fire Flaherty.
However, the Post notes that with the qualified support of the Bloc and
the NDP, “the government’s initiative has enough votes to pass in the
Commons.”
Harper pledged during last winter’s election campaign
that a Conservative government wouldn’t touch income trusts, and the
reasoning behind the Tory decision to break the much-vaunted promise is
fodder for speculation in today’s news cycle. According to the Globe,
Flaherty was convinced to abandon the party’s position after BCE chairman
Michael Sabia told the finance minister he was planning to transform the
telecommunications giant into a $27-billion income trust. The Globe
suggests it was Sabia’s announcement, coupled with rumors that others in
the energy sector were considering following suit, that prompted “the
federal government to accelerate its crackdown.” The Star cites University
of Toronto economist Jack Mintz’s estimate that the government is currently
losing $1.1 billion annually in tax revenue due to income trusts. La
Presse, meanwhile, suggests Harper’s government made the move in order to
prevent the annual loss from growing to $5 billion over the next five
years. The Citizen notes that both BCE and Telus have put their plans of
morphing into income trusts on hold.
Thursday 02 November 2006
Income trust decision not a broken promise, Harper saysPrime Minister Stephen Harper denied breaking a major election pledge with his government's surprise decision to tax income trusts, saying the party promised only to protect the incomes of Canada's seniors, not the profits of major Canadian corporations and foreign investors.
Wednesday Nov 1, 2006 
Income Trust new Tax
Federal government announces plan to curb growing income-trust trend
Indexes expected to plungeIncome trusts and Canadian stock indices are expected to be walloped today after federal finance minister Jim Flaherty last night said he would introduce a tax to stem the number of companies converting into the tax-dodging structure.
Canadian Finance Minister Jim Flaherty has announced tougher new rules governing corporate income trusts to check their growing popularity. Mr. Flaherty says the trend could shift billions of dollars of the national tax burden onto individuals and away from corporations. Under existing rules, corporations that convert themselves into income trusts pay less federal tax, instead "distributing" high returns to the former shareholders who pay the tax. There have been $70 billion of such conversions recently, including that of Telus Corp., the country's second-biggest telephone company. Under the minister's new rules, there will be a new tax on the "distributions." Existing trusts will have a four-year period to adjust to the modification, and corporate taxes would be cut to discourage conversions.
Taxing trustsFinance Minister Jim Flaherty announced late Tuesday that the government will impose a tax on income trust distributions, a move expected to upset markets and halt conversion plans by two of Canada’s biggest corporations.
cbc Flaherty imposes new tax on income trusts $70 billion of new trust conversions have been announced so far this year — something he said is hurting the economy.
November 1, 2006
K TRUST by Ceri Au
The pay day is over for income trusts. Just when Canada’s largest telecommunications companies, BCE and Telus, announced they too were jumping on the income trust bandwagon, Finance Minister Jim Flaherty dropped a financial bombshell. Announcing a new tax on income-trust distributions Flaherty has set the new Bay Street modus operandiits head. Previously, corporations could escape corporate taxes by converting into a trust. In short, companies paid little or no corporate tax, investors got more bang for their buck and the markets leaped for joy. Income trusts quickly became a favorite in many stock portfolios, especially for seniors, who relied on them to supplement their inflation-prone pensions. Their popularity was one reason the previous Liberal government backed away from bringing about similar reforms. But perhaps the most surprising thing about yesterday’s decision was that it contradicted a Tory election promise not to meddle with the income trust status quo. Now facing a sizeable backlash from investors, Flaherty claimed yesterday that the culture of the income trust was robbing government coffers of much-needed revenue, forcing the average Canadians to shoulder a bigger tax burden. In an interview with Peter Mansbridge on The National last night (not available online), Flaherty addressed concerns that the surprise announcement will cause volatility in the markets. He pointed to the 2011 date for implementing the taxes and the reality that countries like Australia implemented similar taxation schemes back in the 1980s. Furthermore, the new tax on income trusts will be coupled with a round of corporate tax cuts.
Alas, not everyone is drinking Flaherty’s Kool-Aid. William Holland , CEO of the newly-minted income trust CI Financial, lashed out at the Tory plan for being “incredibly irresponsible.” Holland said his trust was formed after much deliberation and under the presumption that the rules would not suddenly be changed. Holland certainly won’t be alone on Bay Street today in feeling betrayed. But Flaherty looks to be picking his battles. With the vote-rich elderly demographic potentially miffed at the income loss, the kindly finance minister also moved yesterday to allow pensioners to split their taxable income. Brian Laghi in the Globe suggests that the timing of the income trust announcement is politically strategic, given that 2.5 million pensioners will now be finding extra cash in their pocket come next Spring—when many analysts think Canadians will again be headed to the ballot box. Corporate Canada may be upset and the Liberals may work the broken-promise angle, but the Tories are betting the discontent will likely subside by the time another election rolls around. Much like the markets themselves, this Tory regime has proven to be quite unpredictable. Only time will tell if their income trust gamble will prove to be a wise investment.
THE LEADS:
THE NATIONAL: “Money Moves: Ottawa clamps down on income trusts and seniors get a tax break ”
CTV NEWS: “Tax Attack: Ottawa unveils new rules on income trusts
”
GLOBE AND MAIL: “Income Trusts: Party’s over
”
TORONTO STAR: “Ottawa slams the brakes on ‘unfair’ income trusts
”
NATIONAL POST: “Income trust shake up
”
LA PRESSE: “Ottawa stops the breach of tax dollars from income trusts
”
OTTAWA CITIZEN: “Tories change rules to rein in income trusts
” (top non-local)
INCOME TRUSTS COMMENTS by National Bank Financial.
Last night Finance Minister Jim Flaherty announced that Ottawa will start taxing trusts in the same manner as corporations, effective immediately for new trusts and starting in the 2011 tax year for existing trusts. The Oil & Gas Income trusts that are most exposed are the interlisted trusts and those that have high foreign ownership. We believe that Advantage Energy, Enerplus, PennWest, Pengrowth and Provident will be the most negatively impacted by the Finance minister’s decision. The least impacted Oil & Gas Trusts are Crescent Point Energy, Vermillion, Shiningbank and Focus Energy. We note that Shiningbank Energy Income Trust is probably the safest trust in this group. We also note that our top picks in the sector Progress Energy, Shiningbank Energy and Canetic are also the least impacted. In the energy infrastructure group, we believe that those with lower levels of income and higher return on capital will be the least affected. These include Epcor, Boralex and Superior Propane. We also note that Atlantic Power (Outperform, Target: $11.25) which is an income participating security should not be impacted but will likely sell off today. We would view that as a buying opportunity for Atlantic Power. In the Business Income Trust space, we expect the following companies to be negatively impacted: Energy Savings Income Fund, BFI Income Fund and The Brick. Those who are least exposed are Menu Foods and Sleep Country. A detailed note will be available on our website later this morning.
Friday Oct 27, 2006 fp
Income trusts a good thing, Dodge says
Accounting is a 'worry': Only way for some issuers to tap capital markets
Wednesday Oct 4, 2006 fp IWanted: worst income trusts
George Armoyan has a plan. And if it works out in . ...has a plan. And if it works out in the way he envisions it, he thinks the world of income trusts will be a safer place to invest.
Sunday May 14, 2006 Income Trusts This may be only the beginning
JEFF BUCKSTEIN Special to The Globe and Mail
After a period of uncertainty last fall when the federal government temporarily left the future status of income trusts up in the air, these hot investment vehicles not only seem to be back on track, but holding out promise for continued growth.
Dear David,
Thought you might like to have this - it has had
had very little play in the press and yet it is a significant factor
for the Income Trusts. We are very pleased.
From the Budget docs:
Eliminating the Double Taxation of Large
Corporation Dividends
Income earned at the corporate level is subject
to both corporate income tax and, on distribution as dividends to
individuals, personal income tax. The personal income tax system
provides relief from this "double taxation" through the
gross-up and the dividend tax credit system. This system generally
works well when corporate income tax is paid at the small business
rate. When income is taxed at the large business rate, the system does
not provide sufficient relief for taxes paid at the corporate level,
and an element of double taxation remains.
Budget 2006 proposes to eliminate the double
taxation of dividends from large corporations at the federal level.
This tax reduction will encourage savings, investment and economic
growth, and will make the total personal and corporate income tax on
earnings distributed as dividends more comparable to the income tax
paid on interest payments and income trust distributions.
The Taxation of Dividend Income
The personal income tax system, through the
gross-up and dividend tax credit (DTC), currently provides recognition
for corporate taxes paid based on a 20-per-cent combined
federal-provincial rate, which is intended to approximate the small
business tax rate. The existing gross-up is 25 per cent, and the
existing federal DTC is 13 1/3 per cent of the grossed-up amount.
Because the federal-provincial corporate income tax rate is higher
than 20 per cent for large corporations, the personal and corporate
income tax on earnings they distribute as dividends can be higher than
that paid on interest payments and income trust
distributions.
Generally, dividends paid after 2005 by large
Canadian corporations will be eligible for an enhanced gross-up and
DTC. Specifically, shareholders will include 145 per cent of the
eligible dividend amount in income (that is, a 45 per-cent gross-up),
and the federal DTC with respect to eligible dividends will be
approximately 19 per cent of that grossed-up amount, reflecting the
19-per-cent general corporate tax rate that will apply beginning in
2010.
Table 3.5
Eliminating Double Taxation of Dividends
_____
Margaret Lefebvre
Executive Director
Canadian Association of Income Funds/
L'Association canadienne des Fonds de Revenu
514-935-4131
whitehallk@citenet.net
www.caif.ca
Monday Apr 24, 2006 globe This may be only the beginning
After a period of uncertainty last fall when the federal government temporarily left the future status of income trusts up in the air, these hot investment vehicles not only seem to be back on track, but holding out promise for continued growth.
"My view is that trusts are an international product that's going to be made more popular by retiring baby boomers -- the first wave of which are now hitting 60. As people get closer and closer to retirement, they tend to be less concerned about capital appreciation and more about income preservation," says Dirk Lever, Toronto-based managing director and chief income trust strategist at RBC Dominion Securities Inc., a subsidiary of Royal Bank of Canada.
Moreover, "I think there are businesses out there that are looking at the potential for converting some or all of their business into a trust," he adds.
29/03/06 globe Income Trusts
Special report: This may be only the beginning
Monday Apr 10, 2006 Small investors should be extra careful with trusts
The dust has settled from the Tim Hortons IPO, but the investment bankers involved in the deal are no doubt still snapping their suspenders with self-satisfaction. Unfortunately, it's now time for those guys to get back to their regular jobs - foisting crummy income trusts on an unsuspecting Canadian public.
During the last month, three more business trusts have blown up, inflicting heavy losses on their base of ordinary, small-time investors. The latest casualty is yarn-maker Spinrite Income Fund, whose unit price plummeted 52 per cent this week after it slashed its dividend by 55 per cent.
The Spinrite announcement brings to 31 the number of business trusts that have cut distributions or eliminated them altogether, according to a count by Barbara Gray, an analyst at Blackmont Capital.
That's one-quarter of the 128 business trusts on the market that have now cut their distributions - a move that inevitably triggers a searing decline in a trust's unit price.
Tuesday Mar 7, 2006 globe BCE, Aliant to combine
Phone companies to become one of North America's largest regional telecom service providers
BCE Inc., Canada's largest phone company, said Tuesday it will create an income trust combining Atlantic Canada carrier Aliant Inc., some wire-line assets in Ontario and Quebec, and its interest in the Bell Nordiq Group Inc.
ROBtv | help May NOT WORK with FireFOX
Friday February 10, 2006 ,
Income Trusts
Ravi Sood, president and COO, Lawrence Asset Management
Duration: 57m 48s 
please us IE Firefox wont work for us
2005
December 31, 2005 TORONTO -- Marcel Tremblay, an avant-garde oilpatch businessmen who pioneered the first Canadian income trust nearly 20 years ago, has died. He was 64.
cc Sat 12/31/2005 Office knew of income trust decision: PM A possible leak that could hurt the Liberals dominated the election campaign Friday with Paul Martin confirming people in his office knew of a decision on income trusts before it was made public.
Fri 12/30/2005 OTTAWA: INSIDER TRADING ALLEGATIONS CUT LIBERAL SUPPORT
News of a police probe into the possible leak of new Canadian tax rules has cut support for the governing Liberal Party to 35 percent, from 38 percent. That's according to poll numbers released on Friday by SES/CPAC. It also shows the Conservative Party is on the rise, two percentage points to 34 percent, meaning Liberals and Conservatives are now statistically tied. The poll of 1,200 Canadian voters has a margin of error of 2,9 percentage points. A spokesman for the polling agency added the Conservatives lead the Liberals by five points outside of French-speaking Quebec and said there has been a noticeable drop in the number of Canadians expressing trust for Prime Minister Paul Martin.
Canada's Finance Minister will not resign over allegations that tax policy information was leaked in advance to the country's financial community. The federal police force has launched a criminal investigation into the matter. The Royal Canadian Mounted Police are looking into allegations that information on the government's plan for income trusts had been leaked, leading to a sharp rise in trading of the trusts before the official announcement. Mr Goodale announced the tax policy on November 23rd shortly after markets closed. Political analysts are wondering whether the revelations will have an impact on the Liberal Party's election campaign for the January 23rd vote. The Liberal campaign is already accused of a corruption scandal over kickbacks to party members in the province of Quebec.
Friday Dec 30, 2005 rci Canada's federal police force has launched a criminal investigation into whether tax policy information was improperly leaked to the financial community. The Royal Canadian Mounted Police are looking into allegations that information on the government's tax policy for income trusts had been leaked, leading to a sharp rise in the price of trust units before the official announcement. Federal Finance minister Ralph Goodale announced the tax policy on November 23rd shortly after markets closed. The policy came just days before the start of the federal election campaign and about two months before the policy announcement had been expected. News of the investigation could be a potential setback for the ruling Liberal Party in the current election campaign leading to the January 23rd vote. The Liberal campaign is already accused of a corruption scandal over kickbacks to party members in the province of Quebec. But Mr Martin has reiterated his confidence in Mr Goodale, saying he has not intention of asking for his Finance Minister's resignation. [STOP already this is not an event until there we know there was a crime! We can't vote for Harper or Layton who waist out time]
Tuesday Dec 20, 2005 ts Trusts may add volatility to TSX
The measuring stick for Canadian stock performance is now longer, with a new set of calibrations that could make it harder for most earthlings to read.
Saturday Dec 10, 2005 cc call for income-trust probe
Finance Minister Ralph Goodale
had an hour-long meeting with senior representatives of Canada's
investment community at which the issue of income trusts were discussed
only hours before his decision on the issue was announced, CanWest News
Service has learned.
Wednesday Dec 7, 2005 Online posts suggest leak in income trust caseIn the two weeks since Canada's Finance Minister announced a tax cut to dividend-paying stocks, the big question in financial and political circles is whether some people had advance notice of his Nov. 23 announcement. A CTV Whistleblower investigation into what happened that day has found that may have been the case.
"I believe some information leaked out somewhere," said Christopher Thomas of Measured Markets, a company that analyzes stock trading patterns.
Sunday Dec 4, 2005 rci Canadian Finance Minister Ralph Goodale has again denied that his department has involved in anything illegal or ethically questionable in the days before he announced a new policy concerning income trusts 10 days ago. Mr. Goodale announced that the government would lower personal taxes on corporate dividends but leave the operations of income trusts untouched. Before the unveiling of the new policy, trading in some stocks at the TSE showed unusual activity, which caused opposition politicians to suggest that department officials or members of Mr. Goodale's staff may have leaked details to outside parties. Mr. Goodale says that neither the Royal Canadian Mounted Police nor the Ontario Security Commission have contacted him on the matter. The RCMP is conducting a review at the request of the New Democratic Party.
Monday, November 28, 2005 ,
Karl Moore
ACE's Jazz Trust Strategy
Duration:6m 7s please us IE Firefox wont work for us
Monday, November 28, 2005 ,
Bill Carrigan
White Knight; Boosted Bid; Jazzed About An Income Trust
Duration:27m 43s please us IE Firefox wont work for us
Monday Nov 28, 2005 rci TORONTO: INCOME TRUST TRADING COULD FACE INQUIRY
The Conservative Party of Canada is asking the Ontario Securities Commission to investigate income trust trading. The request was made after the Liberals announced new tax policies last week. Conservative Party finance critic Jason Kenney suggested that insiders benefited the announcement. But he provided no evidence of his claim at a hastily called news conference on Sunday.
Thursday Nov 24, 2005 rci OTTAWA: INCOME TRUST POLICY ANNOUNCED
Canadian Finance Minister Ralph Goodale has announced a new policy regarding income trusts. He says the government will reduce federal tax on corporate dividends to make them more attractive compared with the "distributions" resulting from investment in income trusts. Mr. Goodale says the tax reduction for corporate dividends will help establish a better fiscal balance between corporations and income trusts. Mr. Goodale announced a review of the operations of income trusts two months ago, since which time their value has fallen by 15 per cent. The announcement came after the government calculated it had lost $300 million in corporate taxes because of income trusts, which don't pay them.
Proposed trust tax pulled late in day
Saturday Nov 19, 2005 cc Income trust decision likely in January: Goodale
Finance Minister Ralph Goodale says he's aiming to release Ottawa's new policy governing income trusts before the end of January, regardless of a possible election campaign.
Saturday Nov 19, 2005 rci OTTAWA: FEDERAL GOVT. WOULD MOVE ON INCOME TRUST ISSUE
Canadian Finance Minister Ralph Goodale says he'll make public the government's new policy regarding income trusts before the end of January even if there's a national election campaign. Mr. Goodale says he has been closely following the public consultations which he ordered on the matter and will be prepared to move rapidly after his department officials give him a report on their conclusions of them. The minister ordered a full review of the popular income trusts after it developed that they had cost the government several hundred million dollars in corporate taxes. On another subject, Mr. Goodale says that the Liberal government won't cut the goods-and-service tax, a measure that would be ineffective and costly. He was responding to reports that a Conservative Party government intends to promise to cut the GST if elected to govern. Mr. Goodale says the path of tax relief is best for take pressure off taxpayers. Earlier in the week, his "budget update" promised almost $30 billion of reductions in personal income tax over six years.
Friday, November 18, 2005 Income trusts lobby government's support
Companies want provincial officials to know 'the facts'
Tuesday, November 15, 2005
Biz @ Nite - Energy Market and the future of Income Trusts (p1)
Part 1 - A special edition of CFRA's Business @ Night - as Rob Snow and John Budden discuss the energy market and the future of income trusts. Their special guest is James S. Kinnear of Pengrowth Energy Trust.
Friday Nov 11, 2005 globe Everybody has something at stake on this." taxing income trusts, average Canadians are having a tough time determining what to do with their investments.
Yellow Pages blames Ottawa
No distribution increase for unitholders; Tellier cites uncertainty over taxation plans
Yellow Pages Income Fund pays out 24 cents a unit to investors each month. The company reported a huge third-quarter profit increase Tuesday and said it had enough cash to pay out up to 28 cents a unit. However, it decided to leave the amount unchanged, blaming, in part, the government's review of income trusts.
In an interview, Mr. Tellier said the company is unlikely to raise payouts for several quarters or until the government resolves the uncertainty its review of the income trust sector has cause
see Wed 1232 report
Thursday Nov 3, 2005 rci TORONTO: MINISTER TO MOVE SWIFTLY ON INCOME TRUST ISSUE
Canadian Finance Minister Ralph Goodale says he'll make a decision quickly on the future of income trusts after a consultation paper is made public in December. Mr. Goodale says some have predicted that the government will dillydally for as long as three years before deciding but that those concerns are baseless. In September, Mr. Goodale announced that the government would conduct a public review of the popular income trust sector and that the government would stop allowing advance tax rulings for corporations wishing to transform themselves. The system enables financial entities to avoid corporate tax, the government saying that income trusts cost it several hundred million dollars in lost corporate taxes last year. Critics complain that the minister's decision in September has decreased the trusts' value.
Wednesday Oct 26, 2005 rci OTTAWA: MINISTER HOPES FOR EARLY INCOME-TRUST RÉGIME
Canadian Finance Minister Ralph Goodale says he hopes that new regulations governing income trusts will be in place sometime next year. Mr. Goodale says he doesn't like uncertainty regarding income trusts than anyone else. Last month, the minister announced a public review of the popular income-trust system, with a year-end deadline for submissions. Income trusts enable financial entities to avoid corporate taxes by paying "distributions" to "unit holders," whose personal income tax paid on them is less than that levied on corporate dividends. The federal government said that income trusts have cost it several hundred million dollars in corporate
Wednesday Oct 12, 2005 np Goodale's choice: Shareholder tax reform and corporate income tax relief are avenues the Finance Minister can choose to avoid a battle over income trusts
By stopping tax advance rulings for corporations contemplating converting themselves into income trusts, Finance Minister Ralph Goodale has warned investors that he is ready to change Canada's course with respect to income trust taxation.
Friday Oct 7, 2005 rci GMP Capital Corp. says it intends to carry on with its plan to convert itself to an income trust, becoming the first securities firm to do so. GMP says its board of directors has approved the conversion and that the process should be complete by December. The conversion requires court approval and that of its shareholders, who meet on Nov. 18. The securities firm explains that it hasn't been discouraged by the federal government's suspension of advanced tax rulings because it never sought to obtain one in the first place. The finance department has frozen such rulings pending a public study of the impact of the popular income trusts on the Canadian economy. Income trusts owe their popularity to often more sizeable "distributions" of cash to unit holders, while the enterprise itself pays less corporate tax.
Thursday, October 06, 2005 Derek Decloet,
Income Trusts
Duration 5m 25s please us IE Firefox wont work for us
Thursday Oct 6, 2005 globe ATI loss widens
Graphics-chip maker's Q4 loss swells to $103.5-million (U.S.), beats estimates ex-items
8:19 AM | FULL STORY
Investors take big hit
Ottawa's changes on income-trust rules sent the market into a tailspin and cost millions to average investors
L. IAN MACDONALD Freelance
On Sept. 19, the federal Department of Finance announced a
freeze on tax rulings for companies considering conversion to income
trusts, which distribute a monthly yield to unit holders.
Ottawa,
running a surplus in the billions, was concerned that it was already
losing $300 million in corporate taxes on profits paid to unit holders
instead, even though recipients paid taxes on distributions as other
income.
The next day, the hottest sector of the TSX came
screeching to a halt. Companies that were considering, or even said to
be considering, conversion to income trusts, sold off sharply.
The
biggest losers in the sell-off weren't the companies or the Bay St.
investment bankers and lawyers who stood to lose hundreds of millions
of dollars in banking and legal fees.
The biggest losers were
Canadians saving for their retirements, parents saving in their
children's college education funds and seniors planning their estates.
In other words, people who vote.
The biggest loser of the day was
BCE, Canada's most widely held company, with 300,000 individual and
institutional shareholders. It had been rumoured as a candidate for
partial conversion to an income trust. On the news of Ottawa's tax
ruling - and with no other unfavourable news for the company or the
telecom sector - the stock retreated sharply from a 52-week high and
closed down $1.70.
There are nearly 1 billion shares in the BCE
float. Do the math. In a single day's trading session, the company lost
nearly $1.7 billion in value.
Stated another way, if your
daughter had 1,000 shares of BCE in her college fund, they were worth
nearly $1,700 less at the end of the day. The same for those 1,000
shares of BCE in your RSP, and the 1,000 shares your mom has been
sitting on all these years in her widows' and orphans' fund, quietly
re-investing her quarterly dividends.
Other companies took
similar hits. CI Fund Management was off 11 per cent, or $700 million
in a single session. The TSX Group was off 11 per cent or $340 million.
AGF Management was off nine per cent or $175 million.
All because
Ottawa decided to change the rules in the middle of the game. In the
process, Ottawa created massive uncertainty in the marketplace - the
one thing markets detest most.
As a result, CI Fund Management
and Ace Aviation, the Air Canada parent which had been planning to
convert its Jazz affiliate to a trust, have pulled planned conversions.
CanWest
Global Communications, owners of The Gazette, have restructured a
planned spin off of newspapers and web-sites, reducing the initial
public offering to $550 million from $700 million, and increasing
projected cash distributions. According to one analyst in the Globe and
Mail yesterday, "the change in yield translates into a loss of $300
million for CanWest, which had planned to use the proceeds to pay down
debt."
Readers needn't be concerned about the Asper family. The
voices of media moguls are always heard in political capitals. But what
about those BCE shareholders? Who do they speak to about this?
Stephen Harper tried to raise the issue as his lead-off hit in
question period this week: "When will the prime minister admit that he
simply blundered, back down, and assure Canadians that income trusts
are here to stay?"
Paul Martin was uncomfortable with the
premise, and replied with an evasion: "Mr. Speaker, far from hurting
the retirement income of Canadians, it is this government that a number
of years ago restructured, along with the provinces, the Canada Pension
Plan to make sure that in fact Canada could rely on it."
Pure hogwash. The CPP growth and yield rates have no relation to income trusts.
But
Harper put an interesting spin on the issue. "While the government
negotiates severance with David Dingwall, it is undermining the
retirement plans of ordinary Canadians."
Dingwall had a good life
while president of the Royal Canadian Mint, and did even better in his
previous life as a lobbyist, receiving $350,000 from a successful
applicant for federal Technology Partnership Canada funding. And now
Ottawa is negotiating his severance when, if he quit rather than being
fired, he isn't entitled to any.
He negotiates with the Privy
Council Office. Who do ordinary Canadians see about the losses, caused
entirely by Ottawa's stupidity, in their income trust accounts?
Many
voters, Prime Minister, regard this is as "very, very important." They
will hold you directly accountable for this mess. And so they should.
ian-macdonald@sympatico.ca
© The Gazette (Montreal) 2005
Thursday Sep 29, 2005 globe Income trust sector in disarray
S&P rethinks TSX listing; CanWest IPO in peril; CI Funds conversion on hold
Tuesday, September 27, 2005 np Heating Oil trust bows out in CCAA filing
Among first to declare bankruptcy over high payouts ,,,,,,And there are about 15 Canadian income trusts in danger of following Heating Oil's tortured path, he added.
September 24, 2005 ts Income trusts are getting a rough ride
Ottawa is raining on the income trust parade, and the first to get drenched this week were shareholders of corporations planning to become trusts. Storm clouds are also on the horizon for investors in existing income trusts, whether held directly or through mutual funds.
Honey, I shrunk the surplus
The Martin government madly juggled its books to hide its surplus money from the provinces and the NDP
| |
| L. IAN MACDONALD |
| The Gazette |
September 23, 2005
Federal program spending rose by 15 per cent in the last fiscal
year, five times the rate of Canada's economic growth. That's like
saying your household spending grew five times faster than your income.
It's
not a good way to run your house, and it's not a good way to run the
country. But neither would you keep your books as Ottawa does,
low-balling the surplus before getting rid of it in a last-minute
spending binge. Maybe you'd pay down the mortgage, your household
equivalent of the federal debt.
It's all a matter of how you keep the books. Or cook them.
Consider:
Ottawa's surplus forecast for 2004-2005 was $3 billion, the kind of
low-ball number we've come to expect from Department of Finance
forecasting ever since the budget was balanced in 1997. In 2001, there
was so much cash that
Ottawa recorded a surplus of $20 billion. In the next three years, the treasury racked up another $23 billion in surplus.
In
addition to its routinely conservative fiscal forecasting, Ottawa
builds $3 billion of contingency spending into its models. Which is how
this year's surplus was forecast by outside experts to be at least $7
billion, a number downplayed by the feds.
The Martin government
couldn't have that outcome. Jack Layton would have been at the door,
grasping for another multi-billion dollar handout as his price of
propping up the government. Or those greedy provinces would have been
at the gates of the capital, demanding the surplus be handed over to
them. In either case, the federal government, and the prime minister,
would look weak. Not a good thing going into an election.
Not to
worry. With just a little creative accounting, the surplus virtually
disappeared overnight. In its final accounting for the last fiscal
year, Ottawa reported a surplus of only $1.6 billion.
Honey, I shrunk the surplus.
The
feds took $4.6 billion of last-minute spending, including $2.7 billion
of transfers to Newfoundland and Nova Scotia for offshore energy
revenues, and wrote it all up as a one-time charge rather than
allocating it over several years.
But there's the problem. The
2005 budget is based on a new fiscal model, whereby program spending is
spread over a five-year timeline. Most of the spending is back-end
loaded. It allows Martin to say he's keeping his promises in health
care, daycare and cities. For example, $9 billion is being transferred
to cities over five years until 2009. It's a real number. It also, as
Memorial University's Christopher Dunn observes, locks in the cities to
supporting the federal Liberal plan.
Which leaves Paul Martin
telling Jack Layton to take a hike, and turning out his empty pockets
to the provinces. Except that even as Martin pleads poverty, Ottawa's
revenues are inexorably rising. For example, the spike in gasoline
prices has produced a windfall in GST revenues for Ottawa. If you were
putting $40 in your tank before, and $50 recently, 7 per cent of that
$10 increase goes to the feds. Has anybody thought of capping the GST
on gasoline?
Nope, Ottawa is too busy this week putting the
brakes on companies converting to income trusts, whereby profits are
distributed to shareholders, usually on a monthly basis. Since
companies don't pay taxes on income distributions (though recipients
do, as other income),
Ottawa is concerned that the trend to income trusts is
depriving it of corporate taxes, several hundred million dollars so far
this year.
Ottawa cooled the income- trust conversion trend on
Monday when Finance Minister Ralph Goodale said the Canada Revenue
Agency would no longer issue advance tax rulings to companies thinking
of converting to trusts.
It also cooled the stock market,
including the booming energy income-trust sector. The TSX 300 was off
125 points on the news. The country's most widely held company, BCE,
rumoured to be considering conversion to an income trust, took a huge
hit. On Monday, it closed at a 52-week high of $32.95. On Tuesday it
went out at $31.25, a loss of six per cent, or $1.6 billion of market
capitalization in a single day.
There was no other news to
account for the slide in the share price - no bad earnings report, no
downgrade by analysts, no bad outlook for telecom or wireless, no
unfavourable decision on rate increases by the regulator. There was
only Ottawa creating uncertainty, the one thing markets hate most of
all.
Everyone in Canada owns a piece of BCE, either individually
or institutionally. You own it in your retirement accounts, in your
daughters' college funds, in your parents' estates.
Who speaks
for the people who took this hit on Tuesday? Certainly not Martin or
Layton. There's never a Stephen Harper around when you need one.
ian-macdonald@sympatico.ca
© The Gazette (Montreal) 2005
Friday Sep 23, 2005 ec A relatively peaceful vote, but Afghanistan's future is still not secure
Friday Sep 23, 2005 cc Goodale defends review of income trusts
Ottawa's review of the booming income trust sector is driven as much by concern over its impact on the economy as it is by fear of corporate tax losses, says Finance Minister Ralph Goodale.
Thursday Sep 22, 2005 rci OTTAWA: MINISTER FEARS INCOME TRUSTS BAD FOR ECONOMY
Canadian Finance Minister Ralph Goodale says he's as much concerned about the results of the burgeoning popularity of income trusts on the economy as about the loss of federal corporate taxes which they have caused. Ottawa is thought to have lost $300 million in taxes to the trusts. Earlier in the week, Mr. Goodale announced a measure the result of which will be virtually to freeze the creation of the trusts pending a public review of their advisability. The trust pay much of their earnings to "unit holders," instead of paying federal taxes. Mr. Goodale says he fears that the "distributions" to unit holders will eventually affect the economy adversely because a trust has less money to reinvest and thus to grow. [.. ..don't mess with what is, Get the $300mm else where! DTN]
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Friday Sep 9, 2005 rci OTTAWA: REVIEW OF INCOME TRUSTS LAUNCHED
The Canadian government has announced a public inquiry into the increasingly popular income trusts. The government will ask companies, investors and the general public their opinions on how to tighten the rules governing income trusts. Under such an investment vehicle, trusts avoid most corporate taxes by making "distributions" to "unit holders," which often pay more than standard corporate dividends despite the income tax paid on "distributions." The federal finance department said on Thursday that the growing prevalence of income trusts cost it $300 million in potential corporate tax payments last year. The Canadian Tax Foundation, a non-profit research group, points out that the federal government is likely aware of some of the delicate political implications of that situation because the tax burden risks being shifted to small businesses and individual taxpayers. Meanwhile, the CanWest Global Communications Corp. has confirmed rumours that it will convert 28 per cent of its Canadian newspaper and online assets into the CanWest MediaWorks Income Fund.
March 28, 2005 Supplement on Income Trusts
Income Trusts: Well Rooted and Growing (1.8mb pdf)
Wednesday Jan 26, 2005 S&P to add trusts to index
By mid-year, S&P/TSX composite will reflect income trusts as well, index keeper says
story
Oct 13, 2004 ts
You wanted more information on income trusts, after last week`s column, which analyzed their popularity. So, here are my answers to frequently asked questions.
TORONTO (CP) - Initial public offerings grew by nearly 35 per cent to $6.2 billion in 2004, even as IPOs for income trusts continued to fall from their predominance of previous years, an annual survey said Tuesday.
The survey, by the PricewaterhouseCoopers business consulting firm, said 87 IPOs were successfully completed in Canada last year, up from 56 in 2003, when the gross value of the IPO market was $4.6 billion.
The 2004 figure was the highest since 2000, when surging technology issues helped push the IPO market to a record 101 offerings, worth $6.8 billion.
Wednesday Sep 1, 2004 [from Wed1173] Income trusts, a Canadian tax avoidance invention, are now available in some U.S. jurisdictions. Returns on Income trusts - particularly since 2000 - are impressive. At present, particularly in the Oil Income trusts, the key issue is the foreign ownership limitation that has been put on how much foreign ownership can be in income trusts. The Law says primarily run for the benefit of Canadians. How will primarily be defined? Pengrowth , one of the earliest Income trust success stories, has created a structure of Class A and Class B shares, with different rights and limitations on the nationality of the owners. Is this a solution? Stay tuned.
Friday 9 Jul 2004 [ Wed1166] Income trusts, a Canadian tax invention, in decline & are beginning to correct. They have been very successful, but have now been overplayed. Comment was made that investors are not well protected in Canada.
Today June 21, 2004, Ontario has introduced the long awaited Budget
Measures (No.2) Bill 106 which includes an amendment to extend
limited liability protection to income Funds. This bill is
essentially the same in context as that introduced as a Private
Memebers bill by John Baird in December of 2003, which was the same
as the bill proposed by the Conservative government of Ernie Eves,
before the 2003 election.
Although legals opinion has been mixed as to the de fact danger of
unlimited liability potential for Income Funds, it has been
considered to be crucial to the growth of this sector, especially in
the area of Index inclusion and eligibility for pension fund
investment.
Alberta was the first province to pass Limited Liability legislation.
The Alberta law has been promulgated and will be in effect from July
1, 2004 for Funds originating in Alberta. Ontario will now be the
second province to follow suite.
CAIF has ongoing initiatives in BC and Nova Scotia which should come
to fruition this year.
This move by Ontario is good news for investors in Income Funds and
CAIF congratulates Ontario for having moved forward in this matter.
Bills/38_Parliament/Session1/
Margaret Lefebvre Executive Director
Canadian Association of Income Funds/
Wednesday May 19, 2004 cbc GOODALE SUSPENDS BUDGET PROPOSAL LIMITING FUNDS' INVESTMENTS IN TRUSTS Finance Minister Ralph Goodale has suspended proposed budget rules that
would have limited investments by pension funds in income trusts.
CALGARY, May 15 /CNW/ Pengrowth announces a new management agreement PGF.UN, TSX; PGH, NYSE
Tuesday May 11, 2004
Canadian Real Estate Inv. Trust (REF.UN - $13.53) Rating: 2-Sector Perform Target: $15.00
Strong Q1 Results
CREIT reported Q1/04 funds from operations per unit (FFOPU) of $0.40 versus $0.36 in the prior year. Q1/04 FFOPU included a $0.016 per unit positive impact due to an accounting change on straight-lining of rent revenue, which was not included in either our estimates or prior year results. This suggests Q1/04 results were $0.01 above our $0.37/unit estimate. The better-than-expected results were due primarily to a 3.3% YOY increase in same-property NOI, led by occupancy gains in the industrial and office segments. We have increased our estimates for 2004 and 2005 to reflect higher occupancy levels. Given our new estimates and expectations for CREIT to maintain an adjusted funds from operations payout ratio in the 92%-94% range, we believe CREIT is poised to increase distributions by 2-3% later this year and again in 2005. However, our expectation for REIT valuations to remain depressed has caused us to lower our target prices. –– Himalaya Jain
Sunday Apr 18, 2004 cbc
ATLAS COLD STORAGE INCOME TRUST NAMES NEW CEO
Atlas Cold Storage Income Trust dipped into the insurance industry to
find its new chief executive.
THE FEDERAL (CANADIAN) BUDGET from Wed1151
The recently announced federal budget was cautious, creative and held very few surprises. A very interesting part of the budget related to income trusts. No income tax was imposed on income trusts and a five percent cap was placed on the amount any pension fund will be permitted to invest in income trusts, thus preventing the volume required by such pension funds from reaching the point where it might be in a position to unduly influence or manipulate the policies and decisions made by an income trust.
Wednesday 24 Mar 2004 ts
Ottawa curbs pension funds
OTTAWA—The federal government has acknowledged it is not losing significant tax revenue when stable old businesses stampede to raise capital by converting to business income trusts.
Monday 15 Mar 2004 Dear David,
Further to our conversation this morning, It was good speaking with
you from snowy Halifax.
We had an excellent press conference on last Thursday in Toronto to
launch our Economic Impact Study , Risk Analysis of Tax Revenue
Implication of Income Trusts which is on our web site at
www.caif.ca. It was well attended and generated a satisfying
about of subsequent press coverage. The bottom line is that a detailed
investigation of the actual amount of taxes paid pre conversion to
income trust and the deferred individual taxes (some 30% of income
trusts are held in RRSP accounts) paid at the higher marginal tax
rate, as well as the recaptured capital gains at time of conversion,
the overall tax implications are revenue neutral , or at worst in the
200 million dollar range at the present time. Therefore, we
do not expect to see tax treatment of income trusts featured in the
forthcoming federal budget.
Jack Mintz has announced that he too will
be doing a new income trust study, expected to be out in May.
This one will be peer reviewed, as ours was whereas his was published
prior to peer review, and we are confident that we will find ourselves
in the same ball park.
Since in the opinion of Ira Glaskin
, who was our keynote speaker at our first CAIF Conference in Toronto
last week, the 600lb.golliral for the Income Trusts is not the specter
of rising interest rates, but rather changes in the tax treatment of
trusts, we are very pleased with the results of our study.
Claude Lamoureux was our second
keynote speaker at the conference and promised to be a formidable
force for change in his role as the Chairman of the Canadian Coalition
for Good Governance, or as he affectionately calls it, C squared,G
squared. More on this as it develops.
Best wishes for your upcoming Wednesday night on Pension Funds and
maybe someone will have an answer to the question as to what is the
real reason that the Air Canada Union is taking such a strong stand
against the change to Defined Contribution pension plans for future
employees, as it will not affect those who are already in the Defined
Benefit program? In what way is the potential bankruptcy a
better option for the existing employees?
Best regards,
MML
Margaret Lefebvre
Executive Director
Canadian Association of Income Funds/
L'Association canadienne des Fonds de Revenu
514-935-4131
whitehallk@citenet.net
www.caif.ca
tv show 10/12/2004
President, CEO and Director Pengrowth Corporation bio
Thursday 4 Mar 2004 sm Diversified Income Units
Taxing Issues
Recent articles speculating about possible federal government policy reactions to the growth of the income trust sector raise a host of issues - none of them new. Some readers may have been left with the impression, however, that the curtain is about to fall on the income trust sector. We have no insight into the Department of Finance's future plans, but for the sake of greater clarity, make the following observations. Tax Leakage: Commentators frequently raise the loss of corporate tax revenue as a primary concern about income trusts. We believe tax authorities are more sophisticated and look at the overall tax revenue picture, including ultimate recognition of distributions at typically higher personal income tax rates in the hands of individual investors. Cross-border ownership: Foreign ownership of income trusts creates potentially permanent Canadian tax leakage, unlike the zero-sum argument within Canada. This is because lower withholding tax on distributions (generally 15%) is less than would be collected through a combination of corporate income taxes and withholding tax on corporate dividends.
Difficult to Estimate: Estimating the amount of tax deferral (or possible tax loss) depends largely on a number of assumptions. Few other than the Department of Finance and CCRA likely have access to reasonably accurate data on which to make estimates. Development Policy: We believe investing in income trusts does not inherently deprive the economy of risk capital. Despite impressive recent income trusts returns attributable in large part to a reduction in prevailing interest rates and strong flow of funds, we believe that income trusts generally offer a more conservative risk/reward proposition than the higher risk and reward generally associated with development capital. We would submit that these two types of investment are likely to be mutually exclusive and therefore do not compete with each other. Retrospective or Prospective Changes: We believe that if the Department of Finance were to have serious concerns about potential "tax leakage" any tax regulation or policy changes would likely be applied prospectively. As such, we expect that existing trust issuers would be grandfathered. We also believe that potential candidates for conversion to the trust structure would be restricted if the goal were indeed to limit future growth in the sector. –– Tony Courtright
Monday Jan 12, 2004 Atlas Cold Storage Income Trust (FZR.UN - $6.67) Rating: 5-Under Review
Changing of the Guard
Atlas Cold Storage announced that the existing Board of Directors will be replaced. Effective January 30, 2004, four of six directors will resign. The remaining two directors are expected to remain directors until no later than the next annual meeting of Atlas's unitholders. Effective January 30, 2004, Mr. Peter Dey will join the Board of Directors and also take on the role of Chairman of the Board. We view these personnel changes favourably, as it further demonstrates the recently established Special Committee's commitment to restoring investor confidence in the company's internal controls, systems and personnel. Since September of last year, the company has now replaced the majority of personnel (three senior executives and the entire board of directors), who might have born some responsibility for the accounting irregularities previously identified. Despite these positive steps, we continue to believe that until audited historical financial statements have been provided and pending further clarification on the possible actions the Ontario Securities Commission could take, we have no reasonable basis for a financial forecast at this time. Consequently, our recommendation and target price remain Under Review. Atlas continues to expect to file Q3 financial statements no later than January 29, 2004. –– Chris Blake
Thursday Jan 8, 2004 cbc
IPO MARKET SLIPS IN 2003
Slowing momentum for new income trusts cooled off Canada's market for
initial public offerings last year, PriceWaterhouseCoopers said
Wednesday.
2003
Wednesday Dec 17, 2003 cbc
LEGACY HOTELS REIT SUSPEND THIRD CONSECUTIVE DIVIDEND
Legacy Hotels Real Estate Investment Trust
continued a bleak streak on Wednesday by suspending its fourth-quarter
distribution payment - the third consecutive quarter it's done
that.
Wednesday Sep 24, 2003 Oil & Gas Royalty Trust Weekly
Weekly Update
Through Friday, September 19, the Scotia Capital Energy Trust Index has generated a total return of 28.4%, outperforming the Scotia Capital Income Trust Index (+19.2%), the S&P/TSX Composite Index (+16.6%), and the S&P/TSX Canadian Energy Index (+5.5%). Top performers YTD include NCE Petrofund (+52.4%), Advantage Energy Income Fund (+38.5%), and Focus Energy Trust (+37.5%). Last week, the top performing trusts were Freehold Royalty Trust (1.0%), Pengrowth Energy Trust (-1.5%) and Advantage Energy Income Fund (-1.6%). WTI crude oil closed last Friday at US$27.03/bbl bringing the YTD average to US$31.05/bbl. AECO natural gas prices closed last Friday at C$5.35/mcf, bringing the YTD average to C$6.99/mcf. Our base commodity price assumptions for 2003 are US$30.00/bbl for crude oil and C$6.55/mcf for natural gas; for 2004 our base commodity pricing assumptions are US$24.50/bbl for crude oil and C$5.25/mcf for natural gas. For 2004, forward strip prices for crude oil are about 6% higher than our base pricing assumptions at US$25.85/bbl, and for natural gas, are about 8% higher than our base pricing assumptions at C$5.65/mcf. Under our base pricing assumptions for 2004, the average cash yield for our universe of coverage is 11.8% and the group trades at an average enterprise value to debt-adjusted cash flow multiple (EV/DACF) of 8.8x. Utilizing the forward strip for 2004, the group would trade at an average EV/DACF multiple of 8.1x while providing a forecast cash yield of 12.8%. On a price to net asset value basis, the sector ranges from an average of 157% under our base pricing assumptions to 130% under the forward strip. We continue to believe the sector as a whole is relatively expensive today. Our one-year total return projection (including cash distributions) for our coverage universe is 1%. Our 1-Sector Outperform rated trusts include ARC Energy Trust (projected return of 9%), and Focus Energy Trust (projected return of 14%). –– Brian Ector
Friday Sep 12, 2003 cbc
HOTEL WOES PROMPT SECOND PAYOUT SUSPENSION AT LEGACY REIT
Legacy Hotels Real Estate Investment Trust announced Thursday it would not make a distribution to its unit holders in the third quarter because of what it called a "challenging operating
environment."
Monday Jun 30, 2003 globe 
in 6 day series
Canadian Association of Income Funds
Margaret Lefebvre Secretary / Treasurer & Executive Director
CanadaNewsWire25Feb03 [pdf]
Google Cdn Income Funds | Income trusts
Income trusts pay off
But research is key before investing. Excellent rates of return in recent years not likely to continue, finance professor warns |
| |
| DON MACDONALD |
|
| The Gazette |
Wednesday, June 11, 2003
Income trusts should be considered "low-risk equities" but investors have to do their research to ensure the underlying business can sustain high cash distributions, a leading finance professor said yesterday.
Paul Halpern said income trusts have been producing excellent rates of returns over the last couple of years thanks to falling interest rates "and that won't be the normal state of affairs."
Halpern, a finance professor at the University of Toronto, said higher interest rates will hit income-trust unit prices, but noted that rates aren't the only factor that has an impact on prices.
"If interest rates go up, it's not necessarily the death of these things," Halpern told participants at a major investment conference at the Queen Elizabeth Hotel called the Canada Cup of Indexing and Related Products.
"Interest rates will be going up because the economy is doing better, which means the cash flows and distributions are going to go up."
Income trusts, which pay most of their operating profits to shareholders, have proved to be highly popular with small investors at a time of low interest rates. There are now 104 trusts in Canada with a combined market value of more than $45 billion.
Still, the trusts are viewed with suspicion by many and are widely misunderstood.
Halpern defended them as "legitimate instruments" that have a place in a well-diversified portfolio.
"There are some rotten ones and some really good ones just like stocks or corporate bonds or anything else," he said. Investors should be looking for stable cash-generating businesses with a loyal customer base, he said.
A key advantage of income trusts is that managers are kept tightly focused on meeting distribution payouts and aren't free to use the company's cash on misguided acquisition sprees, he added.
After his presentation, Halpern said it's reasonable to expect that long-term returns of income trusts will be lower than those of the overall stock market because they have a lower-risk profile.
In another presentation at the conference, TD Bank chief economist Don Drummond warned that investors still have too high expectations for investment returns. With inflation likely to hover around two per cent, returns from a diversified portfolio will realistically come in around six or seven per cent.
Yet, investors surveyed this year by TD said they were expecting long-term returns of 8.9 per cent while at the same time saying they intended to invest most of their assets in fixed-income securities, Drummond said.
The Canada Cup conference focuses on index-based investing, which is growing in popularity among both individual investors and institutions.
Howard Atkinson, iUnits marketing manager at Barclays Global Investors, said the popularity of exchange-traded funds, which are based on various indexes, is rocketing despite the bear market in equities.
Assets invested around the world in ETFs grew to $152 billion U.S. at the end of April from zero in 1990.
Monday Nov 19, 2001 Oil & Gas Royalty Trusts
We have reduced our forecast cash flow and distribution estimates for the Oil & Gas Royalty Trusts to reflect our lower natural gas price forecast. On average we have lowered our cash flow per unit and cash distribution per unit estimates by 7%. Notable reductions were made to Shiningbank and Pengrowth where 14% and 11% cut estimates, respectively. We continue to rate APF Energy Trust, ARC Energy Trust, Enerplus Resources Fund, Provident Energy Trust, and Shiningbank Energy Income Fund as 3-Hold. Pengrowth Energy Trust remains ranked a 4-Reduce. Our lone 1-Strong Buy recommendation is on Advantage Energy Income Fund. –– Brian Ector
Thursday Nov 15, 2001
Oil & Gas Royalty Trusts
The reduction in our crude oil price forecast has led us to downgrade the ratings on APF Energy Trust, ARC Energy Trust, and Provident Energy Trust to 3-Hold from 2-Buy. Pengrowth Energy Trust has been downgraded to 4-Reduce from 3-Hold. Shiningbank Energy Income Fund remains unchanged at 3-Hold. We are currently restricted on Enerplus Resources Fund, PrimeWest Energy Trust, and Viking Energy Royalty Trust. We have reduced 2002 cash flow per unit estimates on average by 23% and cash distribution estimates by 20% on average. Pengrowth's estimates were most negatively affected by our lower oil price assumption with our 2002 cash flow estimate falling 35% and distributions for 2002 down 39%. See the Daily EDGE for a complete review of our new estimates, targets and recommendations. –– Brian Ector
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Andy Nulman 
CANACCORD Income Trust Review 
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