Trusts don’t affect tax coffers: Study

R elated Stories Income trust expert says “lost tax” issue is overblown Regulators closely watching income trusts Regulators want more disclosure from income trusts Income trust market still hot The study also found the tax reduction was minimized by the capital gains realized when the companies converted to the trust structure. Because investors were assigning […]

By Steven Lamb | March 11, 2004 | Last updated on March 11, 2004
3 min read
  • Income trust expert says “lost tax” issue is overblown
  • Regulators closely watching income trusts
  • Regulators want more disclosure from income trusts
  • Income trust market still hot

    The study also found the tax reduction was minimized by the capital gains realized when the companies converted to the trust structure. Because investors were assigning such high valuations to trusts, the conversion process generated large capital gains tax revenues the government would otherwise not have collected.

    These capital gains taxes reduced the immediate revenue loss to $217 million, from $250 million to $280 million.

    The way income trusts are being used by investors further reduces the revenue hit the government was presumed to suffer.

    According to Dennis Bruce, vice-president of Canadian operations at HLB, only 30% of trust units were held in tax-deferred accounts, such as RRSPs and RESPs, while the remaining 70% were in taxable accounts, generating income for immediate use by the unitholder. Of that 70%, 55% of the holdings were taxable at the full marginal tax rate.

    There were reports last week the federal government was examining the current tax-treatment of income funds, apparently with an eye toward tightening the rules. Probyn thinks the government is unlikely to take any such step, though.

    “Our sense is that we probably will not see anything in the budget,” said Probyn. “I think we’re talking about the savings of millions of Canadians, because of the strong retail nature of the market, people tend to hold these in their RSPs and a government seeking re-election would be ill-advised to cause a reduction in value to the voters’ RSPs.”

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

    (03/11/04)

    Steven Lamb

    • R elated Stories
  • Income trust expert says “lost tax” issue is overblown
  • Regulators closely watching income trusts
  • Regulators want more disclosure from income trusts
  • Income trust market still hot

    • The study also found the tax reduction was minimized by the capital gains realized when the companies converted to the trust structure. Because investors were assigning such high valuations to trusts, the conversion process generated large capital gains tax revenues the government would otherwise not have collected.

    These capital gains taxes reduced the immediate revenue loss to $217 million, from $250 million to $280 million.

    The way income trusts are being used by investors further reduces the revenue hit the government was presumed to suffer.

    According to Dennis Bruce, vice-president of Canadian operations at HLB, only 30% of trust units were held in tax-deferred accounts, such as RRSPs and RESPs, while the remaining 70% were in taxable accounts, generating income for immediate use by the unitholder. Of that 70%, 55% of the holdings were taxable at the full marginal tax rate.

    There were reports last week the federal government was examining the current tax-treatment of income funds, apparently with an eye toward tightening the rules. Probyn thinks the government is unlikely to take any such step, though.

    “Our sense is that we probably will not see anything in the budget,” said Probyn. “I think we’re talking about the savings of millions of Canadians, because of the strong retail nature of the market, people tend to hold these in their RSPs and a government seeking re-election would be ill-advised to cause a reduction in value to the voters’ RSPs.”

    Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

    (03/11/04)