While at the Department of Finance, Mark Carney engineered the federal Conservative government's plan to tax income trusts at source. Dodge as the Governor of the Bank of Canada on February 1, Brent Fullard claimed that this creates conditions which favour foreign entities who purchase Canadian income trusts and are not required to comply with rules that restrict growth.
The Conservatives had the support of the Jack Layton and the New Democratic Party , and a majority of provincial finance ministers on this issue. Jack Mintz of the C.
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Howe Institute noted in a December brief that the dividend tax credit changes were not sufficient to level the playing field between income trusts and corporations, and that the tax system continued to distort the efficiency of capital markets. Further, he wrote that "The tax system encourages excessive distributions since trusts that retain taxable profits are subject to onerous taxation.
The C. Most support was related to different tax treatment of trusts over other corporate structures. The CEO of EllisDon was quoted as saying "I just don't see the logic in allowing a group of companies to pay dramatically lower taxes than private companies or companies that aren't organized that way. I really don't see how [the government] had any choice.
When the final vote on the Conservative budget was held, the Bloc supported the taxation of income trusts in the "Tax Fairness Plan" as a quid pro quo for receiving a huge allocation of cash from the Conservative government. Economist Yves Fortin has challenged the reasons for the change in tax regime announced by Flaherty and disputed the Harper government assertion that the trust structure has led to loss of tax revenue because of trust conversions in a research paper.
The December report, Breach of Trust,  summarized the facts underlying previous and subsequent presentations made by Leslie Hayman to the government on behalf of more than income trust investors, fund managers and analysts who subscribed to Reports on the market by TrustInvestor.
Tracing the Maize-Tortilla Chain
Its on-going in-depth analysis indicated that flow-through structures provided generally greater contractual transparency in business management and better total overall returns to investors than other equity issuers and issues in general, while providing relatively high and growing tax revenues to governments compared to other public equities and securities. Government regulation caused market volatility that broke the confidence of investors, many being retired do-it-yourself investors who rely on investment income: Government-driven volatility caused by both the Liberal government in and the Conservative government in not only hurt the assets and diminished quality of life for Canadian investors.
The Conservative Party won the Federal election on the basis that they and their leader, Stephen Harper promised to protect income trusts from additional taxation. By frightening investors into professionally managed funds, their policy-driven volatility strengthened the oligopoly among Canadian banks and financial services. In a January 12, paper Fortin outlined his concerns regarding the claim of tax leakage. Flaherty stated in his October 31, , policy statement "If left unchecked, these corporate decisions would result in billions of dollars in less tax revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief"  but Minister Flaherty has not documented the claimed losses nor the methodology used to estimate them.
Fortin's paper  gives several examples on how the tax on income trusts could lead to a loss in government tax revenue. Analyst Gordon Tait also raised concerns about the lack of consultation and misconceptions surrounding the change in tax policy on trusts in "The Inconvenient Truth About Trusts",  although Mr.
Tait also notes that he recognizes "the dilemma the Finance Minister found himself in," and that "the potential for a large number of corporate conversions to income trusts necessitated some kind of action.
Funding & Implementation
A December 11, "Income Trust Report" by PricewaterhouseCoopers reviewed the surveys and studies conducted in and , the economic benefits and impact of income trusts in Canada. The report concluded that income trusts do have a place in Canadian capital markets and the 'Tax Fairness Plan' is unfair to Canadian investors who hold trusts in a tax-deferred Registered Retirement Savings Plan or a Registered Retirement Income Fund. Analyst Cameron Renkas examined the Department of Finance assertion that the United States and Australia have taken action to shut down flow-through structures.
In his research paper "Digging Deeper" he gives a perspective on how the United States taxes publicly traded flow-through entities and master limited partnerships , the US equivalent of Canadian income trusts. Analyst Dirk Lever wrote on January 15, "We cannot understand why any Canadians would support double taxation of retirement benefits - it affects all of us eventually. In the report Mr. Lever questions the logic behind double taxation of dividends, and claims that foreign investors pay less tax on distributions than domestic investors. The proposed solution, however, is not to retain the existing benefits of income trusts, but to have identical tax regimes for both corporate and income trust distributions dividends.
The report does not address the benefit received from tax deferred savings plans such as RRSPs and pensions at the time of contribution, nor the tax-free accumulation throughout the life of these plans. Hearings on the proposed changes to income trust taxation by the House of Commons ' Finance Committee commenced January 30, John McCallum , the Liberal Finance critic, called on Minister Flaherty to explain the reasoning behind the change in income trust tax policy. In a July 9, , interview on Business News Network , former Conservative Alberta Premier Ralph Klein criticized Prime Minister Stephen Harper and Flaherty for their mishandling of the income trust issue and for not keeping their word on income trust taxation.
According to the Canadian Association of Income Trust Investors, the change in tax rules cost investors billions of dollars in market value. The couple claimed that thousands of U. Prime Minister Harper made a public promise that his government would not tax trusts, as had the previous Liberal government. In the US, the business trust structure appeared with publicly traded partnerships PTPs; also known as master limited partnerships or MLPs which were limited partnerships with units that trade on public securities exchanges, combining the tax advantages of partnerships with the liquidity of public companies.
PTPs started in the early s in the oil and gas and real estate industries. As the decade went on, a variety of other businesses, from manufacturers to the Boston Celtics basketball team, began using the PTP structure. A law was enacted that treated PTPs as corporations unless they derived 90 percent of their income from so-called "passive sources", which included interest, dividends, capital gains, real estate rents, income and capital gains from real estate e.
All existing PTPs whose income did not qualify roughly a third of them were given 10 years before they would be taxed as corporations. Just like in Australia, many of these eventually changed structures, went off the market, etc.
Others such as Cedar Fair received a special tax rate at the end of the ten years on the condition that they would not be allowed to diversify outside of their core businesses. Only three of these "grandfathered" PTPs exist today; however, those with qualifying income, primarily in the energy sector, have thrived, and there are roughly trading today. With the Canadian income trust market booming in the s, American investment bankers have tried to import the Canadian model in a structure called income depositary shares IDS. A handful of small IPOs have used this model since late ; but due to lack of investor demand, interested companies have preferred to go public directly in the hot Canadian market.
March 28, Archived from the original on September 12, The trust in turn, "flows" all of its income received from the operating entity out to unitholders. The distributions paid or payable to unitholders reduces a trust's taxable income, so the net result is that a trust would also pay little to no income tax.
The net effect is that the interest, royalty or lease payments are taxed at the unitholder level. Generally, income trusts carry the same risk levels as dividend paying stocks that are traded on stock markets.
And since income trusts or dividend paying stocks sometimes pay out a portion of their profits every month, investors get the equivalent of a capital gain in the form of monthly distributions on their investment without having to sell their stocks. Income trusts are equity investments, not fixed income securities , and they share many of the risks inherent in stock ownership, but often not the same rights and responsibilities, especially concerning corporate governance and fiduciary responsibility.
Investors in Canadian income trusts cannot rely upon provisions in the Canada Business Corporations Act allowing for derivative actions and the oppression remedy , and often do not even have the right to elect a board of directors. Each trust has an operating risk based on its underlying business; the higher the yield, the higher the risk.
They also have additional risk factors, including, but not limited to, poorer access to debt markets. Interest rate risk is also present inside the trusts themselves on their balance sheets since many trusts hold very long term capital assets pipelines, power plants, etc. In an increasing interest rate environment, not only do the attractiveness of trust distributions decrease, but quite possibly, the distributions themselves decrease, leading to a double whammy of both declining yield and substantial loss of unitholder value.
From Wikipedia, the free encyclopedia.
See also: Economic history of Australia and Taxation in Australia. This section needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. See also: Economic history of Canada and Taxation in Canada. Canadian Department of Finance.
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Canadian Association of Income Trust Investors. House of Commons Canada. Archived from the original PDF on September 28, Archived from the original on February 18, National Post. Cook was conscious that he was probably the first guitarist children would see, and said, "I always think that if it inspires kids to play guitar later on that would be great.
The Wiggles' songwriting and performances were rooted in their professional training as pre-school teachers and in the concepts of early childhood education. The group's "golden rule", according to Field, was to make the content of their songs and shows "developmentally appropriate and fun".
As Field said, "Young children identify with relevant concepts, and enjoy being entertained and being part of the entertainment. They are willing to commit to interacting if you are direct, inclusive, and positive".
The Wiggles' stage shows were full of action and audience participation. By the group's "New Wiggles" iteration, The Sydney Morning Herald called their shows slick and fast-paced, with inside jokes for the adult members of their audience. The bandmembers tended to wander throughout the audience, "thrilling toddlers and smartphone wielding guardians alike".
They believed in empowering children by practices such as greeting their audience members with "Hello, everyone", instead of "Hello, boys and girls" because as Paul Field has explained, the second greeting "unnecessarily separates children and has undertones of condescension".