Re: "Income distrust," Editorial,Sept. 08, 2007; Edmonton Journal

This editorial is a goldmine of disinformation. Firms don't "convert to a trust structure just to dodge taxes," they convert to enhance the efficient utilization of financial resources. Indeed, the income trust format is superior to the equity corporation format in this regard.

Income trusts did not "cost the public treasury billions of dollars." All evidence indicates that the tax take from energy trusts is about twice that from conventional equity corporations. As an income trust, BCE would have generated millions of dollars of tax revenue for federal and provincial treasuries, whereas under its new ownership it will contribute zero.

In his detailed study on income trusts, Gordon Tait, of BMO Nesbitt Burns, states: "Without an income trust market, this type of investment opportunity would be lost to all but institutions and wealthy investors in Canada and to private equity investors abroad." Rather than impose a 31.5-per-cent levy on income trusts distributions, Canadians would be better served if equity corporations were allowed to distribute a portion of their cash flow to shareholders to be taxed at individual rates of up to 39 per cent, with the remainder of their earnings taxed at the actual corporate rates of less than 10 per cent.

Will Zuzak, Edmonton

Edmonton Journal | 11Sep2007 | Harold V. Tipper
Letter to Editor, A19

The editorial "Income distrust" regurgitates the myths and errors put forth by uninformed income trust detractors, the most egregious of which is; "The old arrangement ... was unfair to higher taxed firms and cost the treasury billions of dollars."

Being employed by CanWest Media-Works, which was -- until a short time ago -- itself an income trust, one might think editors would realize that the way trusts reduce their taxable income is by distributing it to their unitholders in whose hands it is taxed, at rates usually higher than the trust would have paid were it a corporation. That being the case, the elimination of trusts will result in a cost to, not a saving for, the public treasury. The problems with provincial tax revenue distortion -- not loss -- could easily be dealt with, as it is proposed to be under Finance Minister Jim Flaherty's so-called tax fairness plan.

To date, Flaherty has been unwilling or unable to produce evidence substantiating his claim of lost revenues. The closest he came was his release a few months ago of 18 pages of computations, almost totally blacked out, and which the government later tried to recall.

Politically, perhaps, adjustments to trust legislation had to be made. Former Royal Bank vice-president John McCallum, now Liberal finance critic, has studied the matter and made a proposal which many feel is reasonable. Details can be read on the Internet by Googling "Canadian income trusts."

Adopting McCallum's proposal would not restore the billions of retirement dollars lost by trust investors last Halloween, but it would stem the takeover tide which, unless the current tax fairness plan is modified, will see large portions of Canada's energy industry fall into the hands of U.S. master limited partnerships.

The media have done a dismal job of researching and reporting the trust issue. Reporters have, for the most part, accepted Flaherty's misleading statements as fact and reported them as such. But thanks to the Internet, the issue remains very much alive as an issue for debate in the next federal election.

Harold V. Tipper, Edmonton

[Original submission]

Edmonton Journal
Letter to Editor
[email protected]

Dear Editor:

The Opinion piece by unknown authors titled "Income distrust" in the 08Oct2007 issue of the Edmonton Journal is a goldmine of disinformation.

"Firms don't convert to a trust structure just to dodge taxes"; they convert to enhance the efficient utilization of financial resources. Indeed, the income trust format is superior to the equity corporation format in this regard.

Income trusts did not "cost the public treasury billions of dollars"; all evidence indicates that the tax take from energy trusts is about two times greater than from conventional equity corporations. BCE as an income trust would have generated millions of dollars of tax revenue to federal and provincial treasuries; whereas under its new ownership it will contribute zero.

In his detailed study on income trusts, Gordon Tait of BMO Nesbitt Burns states: "Without an income trust market, this type of investment opportunity would be lost to all but institutions and wealthy investors in Canada and to private equity investors abroad." Rather than impose a 31.5% levy on income trusts distributions, Canadians would be better served if equity corporations were allowed to distribute a portion of their cash flow to shareholders to be taxed at individual rates of up to 39%, with the remainder of their earnings taxed at the actual corporate rates of less than 10%.

Respectfully submitted
Will Zuzak, Ph.D., P.Eng. (retired); 2007.09.09
Edmonton, AB

Archived as zuzak20070909EdmontonJournal.doc