Income trusts are now once again the investment world’s equivalent of the horror movie zombies — they may appear to be dead but just as you heave a sigh of relief, they are back on the agenda once again:
- Former Liberal Finance Minister Ralph Goodale first floated the idea of placing limits on investments in income trusts by pension funds and announced in September 2005 that his government is studying the “tax leakage” issues surrounding these investment vehicles.
- Faced with an imminent election, the then finance minister backtracked and announced that income trusts won’t be taxed after all.
- Ironically, the “news leakage” of the income trust decision may have played a part in the defeat of Prime Minister Paul Martin in the previous election campaign.
- Sensing, political mileage, the Tories promised to never, ever tax income trusts if they formed a government.
- On Haloween Day in 2006, as some of Canada’s largest corporations were mulling conversion to income trusts, Finance Minister Jim Flaherty announced tough new tax measures on new income trusts and a four-year tax holiday for existing trusts. The results were ugly — income trusts as a group plunged 12% the next day.
With their centerpiece (or not) green shift platform not getting much traction with voters, the Liberals are once again reviving the income trust issue. Here’s what their platform, released today, had to say:
Building upon our initial proposal to retain income trusts as a high-yield investment option so that Canadians have a diversity of investment vehicles, while ensuring tax neutrality between corporations and income trusts, a Liberal government will repeal the punitive 31.5 percent tax on income trusts and replace it with a 10 percent tax that is refundable for Canadian residents.
Liberal insiders are optimistic that the promise will influence voters. According to The Globe and Mail, which broke the story earlier today, they believe that the measure would “restore two-thirds of the value that was lost as a consequence of the [Harper] government’s move”.
Unfortunately for the Liberal party, income trusts barely moved on the news: the iShares CDN S&P/TSX Income Trust ETF (XTR) closed down slightly for the day. Prime Minister Harper, on the other hand, declared that his party considers the matter closed. But, have we really heard the last word on this issue? Any bets on whether income trusts are really finished?
