Industry insiders analyze return to prudence

Income trusts capped in a housekeeping budget Staying the course: No surprises in Goodale’s first budget Advisors react to “non-event” budget Budget draws mixed reviews from industry associations Industry insiders analyze return to prudence The federal budget and your financial plan (Client letter) Back to main page “There was a strong desire expressed with respect […]

By Steven Lamb | March 18, 2004 | Last updated on March 18, 2004

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“There was a strong desire expressed with respect to reducing the debt-to-GDP ratio down to 25% within 10 years,” said Dan Hallett, president of Dan Hallett & Associates Inc. “If successful, this will go a long way toward keeping interest rates low, which is good news for interest-sensitive investment assets like bonds, some income trusts and other yield-oriented securities.”

Hallett points out allowing pensions to invest freely in real estate investment trusts and resource royalty trusts is not much of a concession, since these hold assets many pensions already own themselves.

“It’s proposing that any pension fund that invests in income trusts can be limited to no more than 5% of the units of any particular one income trust,” says Golombek. “Anything above a 5% position in one, even though it might be less than 1% of the assets of that fund, would be subject to a 1% per month penalty tax. I expect to hear a lot about this from the income trust industry on this in the next day.”

The restrictions on business trust ownership will stymie the inflow of pension money many had expected once the liability issue is resolved. Adding more pressure on trusts are the new rules on foreign ownership.

“Non-residents holding trusts which normally pay out tax-deferred distributions will be subject to withholding tax at source for distributions after 2004,” says Hallett, pointing out that many trusts have significant foreign ownership. “Some trusts with significant foreign ownership could see some selling pressure since their worth to such investors may be somewhat diminished.”