Harper's idea of transparency

Show us the numbers, income trusts demand


STEVEN CHASE
Globe and Mail
December 7, 2006

Ottawa — The embattled income trust sector is demanding that federal Finance Minister Jim Flaherty release calculations justifying his claim that trusts are costing Ottawa half a billion dollars in lost tax revenue each year.

Private sector analysts have questioned Ottawa's figures and suggested the revenue bleed has been significantly overstated.

When he slapped a surprise tax on income trusts on Halloween, Mr. Flaherty justified it by saying the investment vehicles were costing Ottawa $500-million annually in lost tax revenue and warned this hemorrhaging could grow to threaten federal finances.

He also said that annual losses would have climbed to $800-million annually if Telus Corp. and BCE Inc. converted to trusts.

Trusts say they've yet to receive details from the Finance Department on how mandarins got the loss estimate.

"There's nothing backing up these numbers that Jim Flaherty has been throwing out," said George Kesteven, president of the Canadian Association of Income Funds.

"It's never been analytically substantiated."

The Globe and Mail has also requested the data from Finance.

Mr. Kesteven said work by some other analysts has contradicted Ottawa and concluded that income trusts are tax neutral, meaning they cost the federal government nothing in lost tax revenue.

One Calgary royalty and income trust analyst is trying to use the federal Access to Information Act to prompt Finance to release the detailed analysis it conducted to derive its tax loss estimates.

Gordon Tait of BMO Nesbitt Burns says his own work concludes that Ottawa reaped more, not less, tax revenue after firms converted to income trusts.

"We looked at 126 businesses that converted from equities to trusts between 2001 and 2005 to prove that," Mr. Tait said in a study.

"We found that on average the government stood to collect 2.2 times more in taxes by taxing the distributions of the trust than had been paid by the corporations prior to their conversion."

The Tories broke a campaign promise by slapping a levy on trusts, which pay few or no corporate taxes. They said this would apply immediately to new trusts but that existing trusts would be exempt from the levy for four years.

Separately, a move is afoot by the Bloc Québécois to try to extend the grace period for existing trusts to 10 years from four.

The Bloc has written Mr. Flaherty asking for the amendment when he introduces legislation to support the levy. The Bloc backs the trust tax, however, and say they do not plan to withdraw this support if the grace period is not extended.

The Bloc is also lobbying other parties to support the grace-period extension. The minority government situation means the Bloc and Liberals have the power to rewrite the trust bill in committee to extend the grace period to 10 years. The Liberals say they've not yet decided what they will do.