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Liberals, Bloc look to reopen trust tax question
STEVEN CHASE
http://www.globeinvestor.com/servlet/story/RTGAM.20070114.wtrustss0114/GIStory/

Sunday, January 14, 2007

OTTAWA — The public debate over the Conservative income trust tax is poised to reignite as the Liberals and Bloc Québécois try this week to force special parliamentary hearings to probe the controversial levy.

The Liberals have called a meeting of the Commons finance committee this week — even though Parliament is not sitting — to vote on whether to call witnesses as part of a reconsideration of the tax.

The question is still material because the minority Tory government has yet to pass legislation enabling the tax, and opposition parties could collaborate to alter its provisions, including the tax-free grace period for existing trusts.

The Liberals and the Bloc appear to have enough combined seats on the finance committee to force it to call witnesses. But Liberal finance critic John McCallum says the Liberal-dominated Senate would very likely commence its own hearings on the tax if the Commons bid fails.

“I'm virtually certain we'd move for Senate hearings,” he said.

The hearings could mean a return to the public hot seat for Finance Minister Jim Flaherty — who last month declared the tax debate was over — or Finance bureaucrats if they're called to defend the levy as Mr. McCallum plans.

They would also give the beleaguered income trust sector another chance to publicly pitch for exemptions or other changes.

Both the Liberals and the Bloc want the committee to summon experts discussing the merits of extending the tax-free grace period for existing trusts to 10 years from four — a change investors and the trust sector have been seeking.

The Bloc, in particular, has been lobbying to extend the tax-free moratorium to 10 years and that's why they're backing this week's bid for hearings, a spokesman said.

The Liberals also want to probe Mr. Flaherty's much-criticized estimate of how much tax revenue Ottawa lost annually from trusts.

“I'm certainly suspicious of it. We have experts, reputable people saying the final cost is nothing” to Ottawa, Mr. McCallum said.

Mr. Flaherty justified the levy last October in part by saying that annual tax leakage was already $500-million and would have risen to $800-million had BCE Inc. and Telus Corp. converted to trusts.

Income trusts have produced experts to repudiate Ottawa's tax leakage estimates, but Finance has so far rebuffed requests to divulge exactly how it derived those figures.

Heading into this week's vote on whether to call witnesses, the Liberals and Bloc together have six votes on the 12-member committee while the NDP has one and the Tories have four, not including the Conservative chair, who only votes in the case of a tie.

NDP finance critic Judy Wasylycia-Leis said she's not decided whether to back the Liberal bid. If she agreed to, she said, she'd want to examine the former Liberal government's role in letting trusts grow unchecked for so many years.

The Conservatives broke an election promise last Halloween when they announced a surprise levy on trusts to curb what they warned could be a stampede of conversions to this vehicle, which they said resulted in a growing loss of tax revenue for Ottawa that threatened fiscal health.

The Liberals also want to probe whether energy trusts should be granted an exemption from the tax, similar to what real estate investment trusts received.

The income trust sector is eagerly awaiting a chance to second-guess the trust tax, its provisions and the rationale the Tories provided.

“Canadians ... deserve better than the rush to judgment that has characterized the Harper government's approach to the income trust sector,” said George Kesteven, president of the Canadian Association of Income Funds.

Mr. McCallum said it's important to debate the trust tax now, in case the enabling bill doesn't make it to committee before the Tories fall.

It is possible the minority Conservative government may be defeated early this year if enough opposition MPs vote against the Tory budget.

© The Globe and Mail