Replies to post #52449 on INSIDEBULLS

[Muscle88]

Swami, do you still have PJC.a? It is slowly coming back.

[kidl]

Tories push back on trusts

SINCLAIR STEWART
Friday, December 15, 2006
The federal government has no intention of giving special treatment to energy trusts or extending the four-year grace period for the sector, according to a series of talking points prepared this week by the Finance Department for Conservative MPs.

The briefing, designed to help MPs field questions about Ottawa's controversial policy to tax income trusts, suggests Finance Minister Jim Flaherty refuses to budge from his original position, despite a stiff lobbying effort from a coalition of trust executives in the oil patch.

Mr. Flaherty is expected to provide clarity next week on how much growth existing trusts can undertake before they run afoul of something called “undue expansion.” There had been some hope, however slim, he might use that occasion to cut the sector some slack, and perhaps lengthen the transition period to 10 years, as was the case in the United States and Australia. Others had hoped he might grandfather some portions of the trust market, particularly in energy.

However, in the memo, a copy of which was obtained by The Globe and Mail, the Finance Department takes some pointed shots at the lobbying effort. It insists that one of the energy trusts' main arguments — that they resemble U.S. master limited partnerships, or MLPs, and therefore should be treated similarly — is “blatantly untrue.”

“The reality is, the Energy Trust Coalition is holding on to the only argument they have — and it is an argument that does not hold water,” the memo stated.

The document insisted that although Canada was similar in some respects to the U.S. and Australian markets, it was not appropriate to take a “cookie-cutter” approach and follow their example by allowing domestic trusts to remain tax-exempt for a decade.

“Moving to 10 years, at this point, would penalize Canadian investors and taxpayers,” the memo stated. “Imagine losing an additional $3-billion to move to 10 years from four years.

“Who will pay for important policies and programs if these businesses have an even longer tax holiday? Canadian taxpayers and families — that's who. Moving to 10 years will also create even larger winners and losers.”

Eric Richer, press secretary to Mr. Flaherty, said there's been no wavering on the Oct. 31 trust move.

“The minister has been clear on this: The decision of the 31st is final,” Mr. Richer said.

In another section, titled “Why did we break a promise?” the Finance Department explained why it reversed a campaign pledge not to meddle in the trust sector. The memo references proposed trust plans from BCE Inc. and Telus Corp., along with an impending proposal from EnCana Corp., and said it feared a domino effect throughout the capital markets that would exacerbate lost tax revenue.

“While difficult and regrettable, rest assured it was a careful and deliberate decision,” it explained. “But the facts were clear — the trust market had changed so drastically in recent months and the risks to the Canadian [economy] were growing — there was no question to us that not taking action was a bigger risk than having to break an important promise.”

The Tories have been criticized by some investors who said that the party's pledge to leave trusts alone was the reason they felt safe sinking their savings into trusts. Trusts have proven particularly popular with seniors, since these tax-efficient vehicles pay out regular distributions to their unitholders.

However, in its memo, the government refused to shoulder the blame for these decisions.

“This claim just isn't true,” the document stated. “A number of factors influence investor decisions, particularly tax benefits. But let's be clear. Maintaining a balanced portfolio of investments is always wise, no matter what the circumstances. Some investors, unfortunately, chose not to do so.”

With files from Steven Chase