Finance Minister Ralph Goodale flip-flops on the income trust issue would make Senator John Kerry very proud:
- Mr. Goodale reversed the proposal made in the 2004 budget on limits to investments in income trusts by pension funds.
- Back in September, he announced that his ministry is studying the tax leakage issues surrounding the sector. Just this week, facing an imminent defeat of his government, he decided that he wouldn’t tax the sector after all. He also announced a dividend tax cut to level the playing field between income trusts and corporations.
Mr. Goodale is merely taking the easy way out and in fact, seems to have backed away from his decision to impose a small tax of 5% on income trusts held inside pension funds and tax-deferred accounts. Given the history of flip-flops on this issue, my bet is that his latest “promise” is of the Dalton McGuinty (the current premier of Ontario who is well-known for breaking his word) variety. If the Liberals win a majority, Mr. Goodale is likely to revisit the issue once again.
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5 responses so far ↓
1 George Harris // Nov 26, 2005 at 5:09 pm
I was glad to see you covered this issue. Although I know you’re not a fan of the trusts, I am from US and a Canadian Royality Trust investor. This item didn’t seemed to be covered at all in the US including CNBC or WSJ which is kind of surprising, especially since the US traded Canadian Trusts went up 5% on average Wednesday’s half trading day.
2 Ray // Nov 28, 2005 at 6:33 am
This whole ‘income trust tax leakage’ stuff is really starting to get under my skin. The announced dividend tax cut is nothing more than an election promise although it does put pressure on the other parties to promise the same. My portfolio is currently about 35% income trusts (split between oil/gas, pipelines and power generators) and Goodale’s little flop last week after his flip in Sept gave me a nice 1-day 3.5% boost in my portfolio.
The really frustrating part is that we probably aren’t going to get a majority goverment after the next election so we will probably have to go through all this stuff again in less than 2 years. When will the Tories understand that they aren’t going to get anywhere with Harper as the lead man?
3 Canadian Capitalist // Nov 28, 2005 at 7:05 am
Ray: I really think the dividend tax cut is a done deal. So, on an after-tax basis, dividends and income trusts are competitive with each other.
The finance ministry was first thinking about a 5% tax on income trusts within the big pension funds. Facing an election, where a few % votes can make a difference, they backtracked. You know the Liberals. They haven’t met a tax they don’t like, so they will revisit this issue later.
Like many Canadians, my political views are of the red Tory variety. With Harper, the Conservatives aren’t going anywhere, especially in Ontario. Pity, because I for one am tired of the Liberals.
4 Barbara Webster // Dec 2, 2005 at 10:43 pm
I just happen to come upon this page and am not sure what it is all about, however, one response reminded me of a question I have regarding Canadian Royal Trusts (gas and oil trusts). I am a US resident, Canadian citizen, and am looking to invest in some trusts (starting to look for income). I understand that there is a 15% (Canadian) withholding and then the regular US tax on top of the withholding. Is this correct and is there a way around it? It sounds like there may be a new 5% tax on trusts (per finance minister). What is a good way to evaluate whether any of these trusts could still be a good investment for me?
5 Canadian Capitalist // Dec 3, 2005 at 8:21 am
Barbara: Thanks for visiting. This is a blog about Canadian Personal Finance matters. I don’t think there is any new tax for Royalty Trusts (even for non-residents).
I think the confusion about a 5% tax is because a Finance ministry official suggested that there will be such a tax for pension funds. Then, the finance minister clarified that there is no such tax.
You may want to look up BMO Nesbitt Burns website for analyst reports about royalty trusts. I tend to stay away from oil and gas trusts.
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