Failed BCE deal allows Flaherty the chance to recoup $2.6 billion in foregone tax revenue

We have a Finance Minister who can’t even read income statements or cash flow statements. Were Flaherty able to do so, he would never have attempted to justify his income trust tax back on November 1, 2006 by saying (in the Globe):

“You have to either leave it alone or fix it,” Mr. Flaherty shrugged Wednesday. “We were going to see the two largest telecommunications companies in the country not pay corporate taxes. That's a clear and present danger to fairness in the Canadian tax system. I thought we had to act.”

Not pay taxes? Wake up Finance Minister Jim Flaherty. You were being gamed by the folks who were running BCE at the time. Neither BCE nor Telus were paying taxes at the time. Can’t you even read an income statement? Do you not read these companies forward looking statements at the time before making such ridiculous statements to the Globe. BCE for example was reporting at the time that:

"Bell expects it will have no significant federal cash taxes through 2010, due to organizational simplification enabling accelerated use of Bell's R&D tax credits."

If in doubt, you could have simply made a phone call to CRA and ask them how much tax BCE was remitting to the government. They would have told you that BCE wasn’t paying a plug nickel in taxes and hadn’t for over 10 years.

Then you could have asked that boy wonder from Goldman Sachs. Mark Carney, to do an analysis of how much tax Ottawa would have collected from BCE and its owners if it had been allowed to become an income trust. Even you could have understood this very simple math: (from http://www.caiti.info/resources_it_mythbusters.php#myth3 )

BCE Ownership:

15% foreign
35% Canadian tax deferred
50% Canadian taxable

Tax Rates:

38% blended tax on income as per Department of Finance Consultation Study dated Sept 28, 2005
19% blended tax on dividends

Distributions on 900 mm shares outstanding

Trust distribution rate: $2.55 per unit
Corporate dividend rate: $1.46 per share

Federal Taxes (including deferred taxes paid on retirement accounts):

BCE as an Income Trust: $793 million per year federal tax
BCE as a Corporation: $240 million per year federal tax

Foregone Federal taxes: $553 million per year

Foregone Taxes over BCE's 4 year corporate tax holiday: $2.2 billion

Foregone Capital Gain on Conversion to Trust: $428 million (based on $5.00/share gain)

Total Foregone BCE Taxes: $2.6 billion