IDA asks Ontario to amend income trust legislation

(March 7, 2003) The Investment Dealers Association wants the Ontario government to move quickly to introduce legislation that would limit liability for income trust unitholders. In a pre-budget submission, the IDA says such a change would put trusts on the same footing as corporations by limiting potential investor losses to the initial investment.

In a letter to Ontario Finance Minister Janet Ecker, the IDA notes the “tremendous” growth of income and real estate trusts since they were first introduced in the mid 1990s.

“The rates of return offered by trusts have made them attractive to retail clients and have resulted in the sector growing to a market capitalization of more than $40 billion,” the letter states. “Despite their rapid growth, institutional investors have largely withdrawn from the income trust marketplace because of the uncertain status in respect of shareholder liability.”

The IDA notes that other jurisdictions are considering similar liability amendments and says that if Ontario fails to act, it risks the loss of head offices and financing activities as trusts locate in other provinces.

In its submission, the IDA also requests that Ontario follow the federal government’s lead and move to eliminate capital taxes. “The time has come for the Ontario government to present a plan for the elimination of corporate capital taxes.” In last month’s federal budget, Finance Minister John Manley pledged to phase out capital taxes by 2008.

On enforcement issues, the IDA has asked the Ontario government to support its request for additional powers, including the ability to obtain investigation orders, to compel witnesses to testify and to collect fines from individuals who are no longer in the securities industry.

The IDA commends Ontario for its involvement in the recent establishment of a provincial minister’s group, which also includes B.C., Alberta and Quebec, mandated to study regulatory reform. “We understand that the provincial approach will focus on creating a passport system, streamlining the registration of investment professionals and the approval of prospectus offerings and private placements,” the IDA says.

The IDA says it is prepared to assist all parties in the reform process. Earlier this week, Ottawa announced the creation of a national “wise persons” committee, which is to issue a report later this year recommending ways to update the country’s securities regulation system.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca