07Mar2008

05Feb2008

Gordon Tait of BMO-Nesbitt-Burns was one of the first economists to examine the ramifictions of Jim Flaherty's 31Oct2006 tax levy of 31.5% designed to kill income trusts. His 22-page analysis titled “The Inconvenient Truth About Trusts” (pdf file) was originally included as Appendix C of the CCET 251-page compilation (pdf file) submitted in December 2006. Since his article is must reading for people trying to understand the issues, I have archived it separately.

21Jan2008

Louis Mix has updated his analysis on Energy Trusts in Alberta (pdf file or html file) with a couple of Appendices and a conclusion that "Energy trusts, in 2005, were about $600 million tax revenue positive for the Alberta Treasury". This rock-solid analysis by Mr. Mix contradicts the claims of former Alberta Finance Ministers Shirley Mclellan and Lyle Oberg that energy trusts were a source of tax leakage exceeding $400 million.

In addition, I have archived a letter dated 08Nov2005 from Stockwell Day to a constituent on the issue of income trusts, when the Conservatives were still in opposition and a blog posting by Brent Fullard titled "The origin of species: RRSPs", which discusses the original intent of RRSPs.

Finally, readers are encouraged to peruse Mr. Fullard's 18Jan2008 posting on the CAITI-online-blog titled "Three bad days, and 2007's gains are gone", which once again demonstrates the superiority of income trusts as opposed to hyped equity stocks and the threat that income trusts pose to the moneyed elites.

01Jan2008

Thanks to the comments of Neil Leeson on 31Dec2007, I decided to start off the New Year with an article titled Road to Serfdom, in which I use Ukraine as an example of what happens when you allow a foreign nation to control your economy. Will our children be serfs or will they control their own destiny?

26Dec2007

A detailed analysis by Louis Mix on "Energy Trusts in Alberta: Some comments about their productivity and taxation" (pdf file or html file) illustrates conclusively that -- rather than being a source of tax leakage -- Energy Trusts contribute far more to federal and Alberta treasuries (on a proportional basis) than do the large oil companies.

To complement this study, I have added my own calculations on "Financial Data for Energy Trusts for Quarter 3, 2007", which once again illustrates that, for every $100.00 of oil/gas sales, the 15 Energy Trusts analyzed generate $15.01 of federal/provincial tax revenues as compared to $4.40 of corporate tax paid by the large oil companies.

To try to obtain a historical perspective on the puzzling aspects of the recent actions of the federal government, I have also added an article by Marci MacDonald titled "The Man Behind Stephen Harper" in the October 2004 issue of the Walrus Magazine.

16Dec2007

Since our last entry over a month ago, we have added five html files to our CAITI Files. Three of these are by Yves Fortin -- a retired civil servant with extensive national and international experience. He was one of the first to make a detailed analysis of the income trust levy, which was included as Appendix B in the CCET report (pdf file). He continued with a shorter analysis in January 2007 and made a submission on 01Feb2007 to the FINA committee. His predictions of the negative repercussions of the levy have proven to be accurate, as confirmed by the recent Deloitte-Touche report titled "Income trust buyouts: Lots of activity, little tax revenue".

It is becoming increasingly clear that the efforts of Finance Minister Jim Flaherty to kill income trusts has been an unmitigated disaster -- costing the Canadian economy and federal and provincial treasuries billions of dollars. On 07Dec2007, the Green Party of Canada issued a press release calling for a public inquiry.

06Nov2007

On Halloween night Tuesday, 31 October 2006, Finance Minister Jim Flaherty announced that the federal government would tax income trust distributions at 31.5% at source, which resulted in an immediate drop in stock market evaluations of the income trusts by some $35 billion. The Energy Trusts were particularly hard hit with the Energy Trust Index dropping immediately by about 18% or 35 points. Earlier that year, the Energy Trust Index had reached 225 and subsequently fell to 158 -- about a 35% drop from the average. As of 06Nov2006 it is at 173.29 almost identical to that on 07Nov2007.

I was heavily invested in Energy Trusts in both my RRSP and stock market accounts. Originally, I thought that there must be some valid reasons behind Mr. Flaherty's action, even though I forwarded a letter of protest to him and Gordon Kerr of Enerplus. However, a detailed examination of the facts reveals that the justifications offered by Mr. Flaherty are false. There is no tax leakage and I have become convinced that the income trust format is superior to the equity corporation format.

I presented my 2-page summary of the facts at a "Town Hall meeting" on 09Jan2007 to my MP, Laurie Hawn and forwarded it to seven Edmonton-area MPs on 18Jan2007 via Email. The reply I received some seven months later was not satisfactory, such that I replied more critically on 09Sep2007, wrote another 2-page analysis "Energy Trusts in Alberta" and forwarded it on 30Oct2007 following Jim Flaherty's press release on his mini-budget.

During November-December 2006, the Canadian Coalition of Energy Trusts (CCET), Canaccord, PriceWaterhouseCoopers, Gordon Tait of BMO-NesbittBurns and many others analysed the income trust issue in great detail. In early 2007, there were presentations to, and a report of, the Standing Committee of Finance (FINA). Also of relevance is the report of the Alberta Royalty Review Panel dated 18Sep2007. These 8 pdf files are archived on the main page, but require Adobe Acrobat Reader.

Also in January 2007, Brent Fullard spearheaded the creation of the Canadian Association of Income Trust Investors (CAITI) with its website and blog at
http://www.caiti.info/
http://caiti-online.blogspot.com/

To me, the evidence in favour of Energy Trusts and against Jim Flaherty's 31.5% tax levy is so clear cut and overwhelming that I am mystified as to why the politicians and bureaucrats -- both federal and provincial -- decided to deliberately kill income trusts. Of particular concern is the designated appointment of Mark Carney to be the new governor of the Bank of Canada. A comprehensive article on income trusts in the 11Oct2005 issue of the Toronto Globe and Mail indicates that Mr. Carney is adamantly opposed to income trusts and that he "earned his spurs at Goldman Sachs in the 1990s in the firm's Moscow office, where he advised on the privatizations that, for better and for worse, transformed Russia's state-owned industries into private enterprises". This Globe and Mail article is a "must read" for those wishing to understand the background leading to the assassination of the income trusts.

There are presently 16 files in the main Income Trust page -- the 8 pdf files are at the bottom and the 8 html files at the top. I expect to make additions as time and circumstances dictate and also update this "blog" periodically.

Respectfully
Will Zuzak, Ph.D, P.Eng. (retired); 2007.11.06