“Potentially significant tax implications” is one of the reasons Ralph Goodale gave for his decision to launch public consultations into the income trust sector. His proposal to enact a dividend tax-cut does make dividends more attractive an after-tax basis.

However, for tax-exempt entities such as pension funds, income trusts are still very attractive. Consider a corporation earning $10,000 in profits. It will pay about 36% in taxes in Ontario, leaving about $6,400 that could be paid out as dividends. If the corporation were an income trust (all things being equal), it would be able to distribute the entire $10,000 to its investors. A pension fund would not pay tax on income from either source, but from the government’s point of view, it received some tax from the corporation but none at all from the income trust. So, a tax leak still exists and Mr. Goodale is likely to revisit this issue again in the future.