Regarding USD/CAD
There might be a nasty reversal in USD/CAD if the Liberals succeed in reversing the decision or extending the deadline for the income trusts. Follow this story closely if you are trading USD/CAD.
Canada's Liberals Seek Hearings on Income Trusts (Update1)
By Theophilos Argitis
Jan. 15 (Bloomberg) -- Canada's main opposition Liberal Party wants parliamentary hearings on Finance Minister Jim Flaherty's plan to tax income trusts to help the party develop a position on the issue ahead of a possible election this year.
The House of Commons finance committee is scheduled to vote on whether to hold debate on Jan. 17, following a request by the Liberals. The Bloc Quebecois support the plan, giving the Liberals enough committee support to initiate the hearings.
The Liberals want to hear evidence on the merits of extending the four-year tax moratorium for existing trusts or exempting energy trusts, John McCallum, the lawmaker responsible for financial affairs, said in a telephone interview today. An election may take place this year because the Conservatives hold a minority of seats in the House of Commons and need opposition support to stay in power.
``We would require a position on this issue in an election and I don't think we can come to a good public policy conclusion without answers to these key questions,'' McCallum said. ``We haven't made up our minds.''
The Conservatives received backing from the Bloc Quebecois and New Democratic Party to pass a motion in November allowing the government to implement the tax. That means the measure can't be reversed even if the government fails to pass legislation enacting the tax. Only a change in government policy could prompt a reversal, McCallum said.
The New Democratic Party, which holds the balance of power, will continue to support the measure, Judy Wasylycia-Leis, the sole NDP lawmaker on the finance committee, said in a telephone interview.
`Grandstand'
She said a reversal now would only hurt investors who have sold their income trusts, and called the Liberal move ``a chance to grandstand.'' Flaherty has insisted he won't back down, forcing trusts to pay tax for the first time, starting in 2011.
The industry has lost about C$24 billion ($20.5 billion) in market value since the government announced Oct. 31 that it will begin taxing existing trusts to limit the erosion of tax revenue. The decision broke an election campaign promise made by Prime Minister Stephen Harper. Trusts have been lobbying for an exemption to the tax or an extension of the four-year moratorium, and investors have tried to keep the pressure on the government.
``We would like to see them examine the facts, tell us what numbers they used, because they haven't,'' Leslie Lundquist, who runs the C$900 million ($770 million) Bissett Income Fund in Calgary, said in a telephone interview.
New Lobby Group
A new group calling itself the Canadian Association of Income Trust Investors was formed today and is seeking to sign up as many as 300,000 people in a bid to reverse the plan. The Canadian Association of Income Funds also has said it will continue lobbying.
The government has said it will seek to introduce legislation after public consultations that are scheduled to end Jan. 31. A Nov. 8 poll by Ipsos Reid found about 4 million Canadians believe they may have been negatively affected by the decision.
Income trusts have avoided most corporate taxes by paying out their cash flow to investors in monthly dividends. The market value of trusts had soared 20-fold in six years to C$200 billion as corporations converted to the investment structure to benefit from the tax breaks.
The Liberals have four members on the finance committee, the Bloc Quebecois have two, and the New Democratic Party have one. The governing Conservatives have the other five.
Because the committee chairman, a Conservative, only votes to break ties, the Liberals only need to win the backing of the Bloc Quebecois to initiative hearings. Pierre Paquette, the Bloc vice-chair of the finance committee, said in a telephone interview his party will support the hearings.
To contact the reporter on this story: Theophilos Argitis in Vancouver at targitis@bloomberg.net
