Winnipeg Free Press

Winnipeg Free Press (Newspaper) - November 2, 2006, Winnipeg, Manitoba Winnipeg free press thursday november 2, 2006 a3 top news investor loss put at $20 billion t Oronto ? income Trust investors suffered More than $20 billion in paper losses on their portfolios wednesday following finance minister Jim Fleming a sur prise move to tax income trusts. While the move created havoc on Bay Street and main Street and caused a stir in the com Mons it is not expected to inflict any major dam age on the Economy. Some of Canadas Best known companies ? from telecoms giants Bce and telus to yellow pages i financial Canadian Oil Sands and aeroplane ? were battered by the Rush Selling following Flaherty a Surprise announcement that trusts will be taxed. Bay streets benchmarks pts Index lost almost 300 Points wednesday and the loonie was Down nearly a cent in reaction to tuesdays announcement but along with the outrage to the conservatives move was acknowledgement that action was required to limit the tax bleed from Federal coffers. Nest eggs seniors saw their nest eggs drop in value overnight. My value is Down 15 per cent today said 60?year-old Morris Jesion the director of a Toron to based seniors association who was angry the conservatives broke an election Promise by changing the status of income trusts. I thought that the government just voted themselves out of office said Jesion. But while some condemned the action there was also Praise for the decision to allow income splitting for pensioners As Well As the increase in the seniors tax credit. Prime minister Stephen Harper denied break ing a major election pledge not to impose new taxes on income trusts saying the party promised Only to protect the incomes of Canada a seniors not the profits of major Canadian corporations and foreign investors. Harper told the House of commons his government acted in response to the intentions of More income Trust coverage. Sit tight Don to panic experts advise a4. Manitoba funds insist there a a Silver Lin ing a4. How did Harper pull off such a stunner a5. Editorial Flaherty a betrayal a13 corporate giants such As telus and Bce to con Vert to an income Trust a designation that allows the company to avoid paying corporate tax and returns higher dividends to investors. The commitment Harper said was not that we would have no taxes for telus. It was not that we would have no taxes for Bce. It was not that we would have no taxes for foreign investors or no taxes for major corporations. It was a commitment to protect the income of however the conservative Campaign Docu ment said the party if elected would Stop the Liberal attack on retirement savings and pre serve income trusts by not imposing any new taxes on the conservatives were the Only party to make such a pledge in the election Campaign and opposition parties quickly produced on wednesday dozens of old statements from Harper and other prominent conservative maps urging the Liberal government of the Day not to tax income trusts and promising that a tory government would never do so. The opposition parties appeared reluctant to oppose the substance of the decision on income trusts which the government estimated costs about $500 million in lost corporate tax Revenue annually. Instead they attacked the apparent broken Campaign Promise which they said risked creating a climate of investment uncertainty in the country. Innocent canadians Are suffering an eco nomic Bloodbath. Because they believed the prime minister said Bill Graham the interim Liberal Leader. He gave his word. Canadians acted on his word. He then broke his Liberal finance critic John Mccallum called for Flaherty a resignation and accused him of having converted the Canadian capital markets into the wild this flip Flop by or. Flaherty has made our markets a laughingstock he said. Despite wednesdays financial Market tur Moil the Impact of Flaherty a moves on the wider Economy will be minimal said Merrill Lynch economist David Wolf. I Don to think this is a huge Deal for the econ omy either Way Wolf said. The main effect is to allay fears that trusts by concentrating on immediate income might hold Back Canadas Long term productivity he said. To the extent that that was a worry its now obviously much less of a on Bay Street the Toronto Stock markets main Index tumbled More than 324 Points to 12,020.27, a decline of 2.6 per cent the biggest loss since mid-2004. The losses were concentrated among trusts with the up tax income Trust Index Down 12 per cent ? an evaporation of More than $20 Bil lion in Market value for investors. I Tell you i be got seniors that have income trusts that Are Down $25,000 or $30,000 today. They re getting hit in a big Way declared Bren Dan Caldwell president of Caldwell securities Ltd. Among major names the yellow pages Trust tax Ylo faded 17 per cent the i financial fund tax plunged 18 per cent and the aeroplane Trust tax lost 10 per cent. There also were big setbacks for telus tax t and Bce inc. Tax Bce which wanted to con Vert into trusts and Canadian Oil Sands Trust tax biggest in Canada. ? Canadian press / can West news service income Trust primer q what is an income Trust and How is it different than a regular Stock a income trusts Are securities that Trade like stocks but have a business Structure allowing them to Allevi ate or eliminate corporate taxes by returning to unit holders virtually All of the income usually in monthly or quarterly payouts. Q i Don town any income trusts. How am i affected if the proposal is enacted a in a couple of ways. Your pension fund May own some or your Mutual funds. And provincial and Feder Al income tax rates for individuals Are set in relation to the spending needs of the governments they May go into your pocket for Money they re not receiving from corporations. Q How common Are income trusts a of the roughly 2,000 securities that traded on the Toronto Stock Exchange at the end of september 255 were income trusts up from 234 at the end of 2005, including such major names As Canadian Oil Sands Trust and yellow pages income fund. Their combined Market capitalization of $201 billion represented roughly 11 per cent of the tax As a whole and that a without Bce and telus two of Canadas largest corporations who recently signified their intention to con Vert to trusts though that Snow up in the air. Q Why do so Many investors Mutual fund companies and pension plans own them a some have attractive business models and markets but for a lot of people the primary attraction is the High yield. At a time when savings Bonds and gics Are offering roughly three per cent annually and the aver age dividend payout for Canadian stocks is about 2.4 per cent income trusts have been yielding about nine per cent Over and above potential capital gains. Its one of the reasons they be been especially popular with seniors though Many analysts have warned they re not guaranteed investments and must be approached with caution. Indeed several trusts have run into financial problems of late and reduced ? or eliminated entirely ? their distribution to unit holders. Q How Are income trusts taxed differently than dividends a income trusts basically eliminated one level of taxation. Companies that pay out dividends Are taxed on the pre dividend profits investors then get taxed on the dividends they receive though they also receive a credit. Income trusts pay Little or no corporate tax redirecting virtually All their profits to unit holders As distributions the unit holders Are taxed on what they receive without any credit but the government is claiming the growth in these structures is negatively impacting Federal tax Revenue. Finance minister Jim Flaherty estimated the difference for Ottawa this year alone at $500 million. Although income Trust distributions will be subject to tax before distribution under the new proposals unit holders also will be eligible for the dividend tax credit. But investors who hold income trusts either directly or indirectly in tax deferred accounts will see their distribution effectively reduced by 31.5 per cent. And non resident unit holders will see their distribution reduced by 26.5 per cent. Q Are trusts still Worth owning now and will they be Worth owning in four years a depends on the company. Despite the Market tur Moil not much changed this week for existing trusts As far As Short term operating dynamics business prospects and distributions. They retain favourable tax treatment until 2011. There still Arent Many invest ments around yielding nine per cent annually. There might even be bargains to be had in the near term As solid trusts get hammered along with the sector As a whole. Down the Road however the trend in distributions definitely will be lower because of the increased tax bite at source so you May want to look into Grad Ual re balancing once this weeks tempest has blown Over. ? can West news service ;