Calgary Herald | 08May2009 | Dan Healing
The Pipeline
Critic says taxing trusts will
cost feds billions
The federal government is looking at a massive drop in its corporate
tax revenue in 2010, figures Scott Saxberg, president and chief
executive of Calgary-based Crescent Point Energy Trust, because of its
decision in 2006 to change tax laws for energy trusts.
The company is in the process of converting to a corporation because it
has reached the end of the federally regulated "safe harbour" growth
limitations.
It's converting about 18 months ahead of Jan. 01, 2011, when trusts
start being taxed similar to corporations. Trusts pay out most of their
cash to unitholders, who pay taxes on the distributions the receive as
income.
Saxberg said he's met with Finance Minister Jim Flaherty to warn of the
impending shortfall and suggest solutions but to no avail.
"The government right now, and this is what we walked through with
them, they're going to lose probably $5 billion worth of tax revenue in
2011 when all of the trusts convert over to corporations," he said.
"(The oil and gas companies) are either going to cut their dividends or
their distributions. We kept it so we're one of the unique guys, but
we're going to use our tax pools now and not pay taxes by using up our
tax pools. . . Most of the oil and gas companies will use up their tax
pools."
Tax pools, made up of undepreciated capital cost balances and unclaimed
losses, are considered assets of the company because they can be used
as credits to offset future taxable income. Many trusts have large
accumulated pools.
"On top of that," says Saxberg, "there's the difference between what
corporations pay, at max, probably a 15 per cent tax, whereas
individuals will pay on the max side 40 per cent, so there's a huge
difference in the revenue the government will get."
Crescent Point plans to maintain its payouts after conversion in July,
although they will be called dividends instead of distributions.
And dividends get special tax treatment.
"Individuals only pay 20 per cent on their dividends, versus 40 per
cent (maximum, on distributions), so there's a significant revenue
difference. We hand out 23 cents a month, in distributions and normally
you'd get 14 cents after tax. Now, as a corp, you'll get 20 cents after
tax."
"So that six cents would have gone to the government but now it goes to
the individual."
Saxberg has been a vocal opponent of the Conservatives' decision in
2006 to tax energy trusts, in spite of the government's decision since
then to allow conversions to corporations without the usual costs.
It's worth remembering the changes affecting royalty trusts were
introduced by Flaherty in October 2006 because he said the trust model
was costing the country about $500 million annually in lost tax revenue.
If Saxberg is right, the cost in the short term could be considerably
more.
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Dan Healing, [email protected]