"Successful countries knock down the barriers -- of red tape, regulation, and monopoly -- that divide citizens, confer unfair advantages or prevent people from working together" Michael Ignatieff
Unfair advantages indeed!!!.....as practiced by Canada’s virtual monopoly media and their penchant for fortress journalism run intellectually amok.
Fortress journalism is a term used to describe an approach to journalism that is resolute by virtue of being intellectually honest and rigorous, as opposed to being impenetrable by virtue of being facile and vapid, as practiced by BNN and the entire CTVGlobeMedia “empire” on the subject of income trusts and as chronicled through the hundreds of email correspondence I have accumulated in my conversations with members of that media entity since November 1, 2006.
Foolishly thinking that I and others would simply go away, we have used the power newly vested in us by the internet to overcome the bricks and mortar media. The power of our truths will prevail over the gross commercial self interests of Canada’s monopoly media, of that I can assure you. Success will be sweet and to the betterment of all Canadians who believe that 2 plus 2 equals 4, rather than 3, as imposed on Canadians by the corrupt and ill-motivated Mark Carney and falsely propagated by the press.
Yes Jim Travers, you included. Since the knowledge of a crime that goes unreported is a form of commission.
Most of the facile and vapid journalism that goes on at BNN on the income trust issue, is propagated over the public airwaves that are presently being completely wasted, while in the hands of BNN. Occasionally, the bright lights at BNN will put their income trust editorial nonsense into print, such as this exercise in complete nonsense by BNN Host Michael Kane., entitled “Trust yourself?”, which is something that any viewer of BNN must be constantly reminded to do, lest they succumb to the droning nonsense.
The Bubble News Network also practices fortress journalism, as they provide virtually no means for rebuttal from the viewing public, unless you consider this to be your idea of free speech “We may print your comment and reserve the right to edit.”
As such I have provided some of the commentary on Michael Kane’s “piece”, that BNN thought unworthy of sharing with the public, in order that an alternative view can be expressed from outside the moat, as we hurl known facts and the occasional well deserved insult at this type of vapid and facile journalism, found elsewhere in the CTVGlobeMedia empire on any subject, like income trusts, that is near and dear to its owners hearts/wallets or that might actually affect the outcome of the “world’s largest ever leverage buyout.....that wasn’t”
This comment from Ian pretty much sums thing up about BNN: “It was said in 2006 that Flaherty knees jerk reacted and did not do his homework. Here we are 27 months later and you still have not done yours. That sir is inexcusable for a member of the media.”or Les who asked “Michael do you just make this stuff up? Do you do any research at all?” or IR who summed things up with: “A three word summation of your composition, in my opinion, is What utter tripe!!”
These informed viewers complete comments follow Michael Kane’s tripe, presented to you here in full mindless technicolor propaganda and his idea of a “nightmare” scenario. Namely a world that that is intellectually honest and factually rigorous???
Posted by Michael Kane on February 3, 2009
I recently asked viewers to send in blog topic ideas and one citizen of Business News Nation said he wanted to know my opinion on income trusts.
That got me thinking about the so-called Halloween Surprise – Oct. 31, 2006 – when federal Finance Minister Jim Flaherty revealed a stunning reversal of government policy by announcing income trusts would be taxed just like ordinary corporations.
Until that point, investors had been pouring money into trusts, which were expected to receive special tax treatment and distribute most of their earnings to unitholders.
But what frightened the government was the prospect of some huge Canadian corporations – huge tax-paying corporations – converting to trust status to avoid paying those taxes. It was the intent of BCE Incorporated to convert into an income trust, an event that would have been a disaster for the government. BCE pays enormous corporate taxes and Ottawa did not want to lose that revenue stream.
OK, that's the history.
Here's what I wonder: suppose the government had not reversed its policy. Suppose it had yielded to the cries of investors who felt they'd been duped. Suppose the government had decided to be fair and stick to a policy that would have seen the loss of billions in tax revenues.
Then the global banking community freezes and shatters.
We all hear the gnashing of teeth over Ottawa's plans to run a deficit, a necessary situation for us now. But imagine the jackpot we'd be in if Canada's largest tax-paying companies had been allowed to avoid most of those taxes.
The hole would be much deeper… the muskeg much stickier.
A lot of people lost a lot of money when the income trust sector sold off following Oct. 31, 2006, and the way it happened is regrettable.
But, without the Halloween Surprise back then, we could very well be living a nightmare now.
Comment from a Bay Street analyst:
Huh? Are you kidding with this Brent? This can’t be for real! When exactly did BCE ever pay huge cash taxes? Doesn’t anyone know how to read a set of financial statements (Hint: look at the tax notes!). Then shortly after the gov’t kiboshed the trust conversion, BCE announced that due to “restructuring of its subsidiaries” it would not be cash taxable until at least 2010. And that was when they were making some money. How much in cash taxes is BCE going to pay to the government this year? How much Canadian tax revenue would have been collected under the foreign-financed LBO structure? (Hint: none) Honestly, where do they find these people to come up with this stuff? Can you get away with not actually taking a University-level business/tax/finance course or program and still become a “business” commentator in Canada. Don’t they have even minimum requirements for educational proficiency? It’s kind of pathetic…
Comment from retired former senior Department of Finance official, Yves Fortin of Ottawa:
I am truly astounded that Michael Kane [of BNN] would write such a comment. His facts are wrong. Bell Canada was not going to pay any material amount of income tax in forthcoming years. Bell said so in a press communique issued in mid-December 2006 shortly after the Flaherty announcement. Telus made a similar announcement.
Second, the vast majority of corporations do not pay the statutory corporate income tax rate. Their effective tax rates are often a fraction of the statutory rate. This is particularly true of corporations operating in the resource sectors. In the Canadian Income Tax Act there is about 140 pages of measures by which corporations can reduce their taxes. In the 2008 annual report I just receive from the Bank of Montreal it is written on page 143 that the effective tax rate of the bank was 7.9% in 2007 and minus (yes MINUS) 3.6% in 2008. They will get a tax refund.
Third, Mr Kane should know that while income trusts don't pay tax themselves their unit holders pay tax on distributions received in non-tax deferred accounts at rates that typically exceed the (diminishing) corporate statutory rate. These individual taxpayers pay on average 38% of their income in tax (federal and provincial) and up to 46% for those in the highest maginal tax bracket. Put briefly, the government collects more taxes from such investors receiving trust distributions that it would if trusts were to convert to corporations.
Fourth, as regards tax-deferred accounts such as RRSP and RRIF. These are tax-deferred account and not tax-exempt accounts as they are frequently referred to falsely. It is wrong to refer to these accounts as being tax-exempt since they are not. The Income Tax Act is very clear in this respect. All taxes are paid when the money held in these accounts is withdrawn. Moreover, holders of these accounts are arbitrarily denied the dividend tax credit and are consequently fully doubled taxed on all dividends received in their accounts. This is most unfair but the Minister of Finance never talks about that. People who will be holding income trust units in their RRSP/RRIF after 2011 will be doubled taxed very heavily and most unfairly : once when the trusts will be forced to pay the STATUTORY tax rate and then again at 38% or 46% for a total tax rate of over 60% in many cases. What Mr. Flaherty has done is to extend the grossly unfair double taxation of dividends to trusts distributions. As it becomes totally non-profitable to hold income trust units in RRSP/RRIF the amount of taxes collected by the government from these accounts will fall substantially as these investors will be forced to invest in low yield intruments, have much lower investment income, and pay much less tax.
Fifth, income trusts that have been acquired in leveraged buyouts since the Flaherty announcement pay virtually no income tax in Canada. All interest payments to foreign investors and equity funds flow out of Canada tax free, thanks to the elimination of the withholding tax on such payments by Mr. Flaherty. Moreover, when trusts revert to corporate model they will most likely pay very little tax as their effective tax rates will often be very low especially in the case of the oil and gas trusts. It is interesting to note that corporations operating in the oil patch and their shareholders were typically paying much less income tax than after they converted to the income trust model.
In conclusion, contrary to what Mr Kane opines the demise of the income trust will result in a significant loss of tax revenue for the government.
Yves L. Fortin
Comment from Bruce Benson Calgary
Wow, you have shown just how inept you really are. And you call yourself a financial journalist or reporter. What a laugh. I have never read so much dribble with the exception being from Flaherty & Harper. Where is your proof? You have not done one iota of investigative journalism. All you did was spread the same lies as Harper & Flaherty. You need to be taken to the back wood shed and then your red ass fired from BNN. You truly did BNN a disservice, your ignorance and laziness is beyond reason. In fact you are not alone. BNN is so biased I am surprised they are still in business. BNN and it's staff are producing an inferior product and will go the way of the Globe and Mail, right into bankruptcy. Smarten up, what a disgraceful bit of journalism. I see others have enlightened you with the truth and the facts. It's time for you to drop your infantile mindset and do some responsible journalism for a change. I can't take anymore more of the crap. What you produced was totally untrue.
Comment from Investor Retaliations
A three word summation of your composition, in my opinion, is What utter tripe!!
That you would continue to espouse the CON party line, carefully avoiding even a hint of factual relevance in your dissertation is bewildering and perplexing to anyone with even the most rudimentary of investigative skills.
I will attempt, as have many others I'm certain, to enlighten you with certain facts and realities, though you may want to continue oblivious in your vacuous postulating regarding income trusts as an investment vehicle.
1- Your statement: "But what frightened the government was the prospect of some huge Canadian corporations – huge tax-paying corporations – converting to trust status to avoid paying those taxes. It was the intent of BCE Incorporated to convert into an income trust, an event that would have been a disaster for the government. BCE pays enormous corporate taxes and Ottawa did not want to lose that revenue stream."
Certain terms you've used are unclear, undefined and merely designed to inflame and sow worry among the uninformed; the FACTS are that BCE, due to extensive tax writeoffs, have paid, and continue to pay minimal corporate taxes, the amount that would have been paid by investors in BCE as an income trust, by estimate would been TRIPLE that generated by BCE as a corp.
Are you aware of the actual amounts paid by BCE as a corporation and if so, why were those amounts not included for comparison? They are a matter of public record, after all.
2- Your statement: "Here's what I wonder: suppose the government had not reversed its policy. Suppose it had yielded to the cries of investors who felt they'd been duped. Suppose the government had decided to be fair and stick to a policy that would have seen the loss of billions in tax revenues."
Pardon? Proof of assumption? Merely accepting and parroting what the government stated without ANY calculations in evidence is no proof of anything, ergo, your statement is, at the least, misleading, at worst, a lie.
A situation of tax leakage is a numbers related situation, this is a determinable, formula based calculation with minimal variances and unknowns; to state as fact that which is unsubstantiated by NUMBERS and FACTS is, quite simply, wishful thinking; when used to defend a fallacious position, it becomes a LIE.
3- Your statement: "We all hear the gnashing of teeth over Ottawa's plans to run a deficit, a necessary situation for us now. But imagine the jackpot we'd be in if Canada's largest tax-paying companies had been allowed to avoid most of those taxes.
The hole would be much deeper… the muskeg much stickier."
MORE nonsense!!! You seem to conveniently avoid the FACT that as a conversion to an income trust would cause investors in said trust to PAY TAXES!!! Is this getting through to you? In fact, said investors would pay MORE taxes that the corporation ever would. This too is substantiated by numerical calculations, not whimsical musings.
Naturally, as an unintended consequence of the TFP, the unit prices of various trusts has been reduced to the point where foreign (PWI) and private takeovers HAS resulted in the reduction of taxes paid by the IT sector.
Frankly, take a read of Dianne Francis' FACTUAL blog entries on this subject... educate yourself on the subject matter prior to publicly embarrassing yourself in the future by waxing eloquent on material with which you are so obviously poorly informed.
You do nothing to dissuade the astute investor from the perception of BNN as financial reporting 'lightweights', incapable or unwilling to present facts as such without accompanying misinformation.
Comment from Jerrthebear
You must be looking for a appointment to the Senate. I suppose you feel better that private equity, pension funds and foreign investors can own Income Trusts and pay no taxes. Perhaps it's all right for Flaherty's own pension fund can own IT's but I can't. Perhaps you don't realize that I pay taxes on my distributions. Perhaps you don't realize that Law firms operate under the same principles. Profits are divided up before taxes paid. You've got your head in the sand. Harper encouraged us seniors to invest in these units so we could, and I quote, "seniors need the income from Trusts to pay for groceries, utilities and health care, we will never tax them". Perhaps you don't understand the billions of taxes lost by Harper's lies about tax leakage. Perhaps you think it is better for the Arabs and Chinese to own our resources. Perhaps you have no freakin idea what you are talking about.
Good luck with the SENATE APPOINTMENT. I really do think you want to be another pig at the trough. My viewing of BNN and anything associated with it is now finished. OINK OINK
Comment from Ian
I’m not sure whether I should be more annoyed with Flaherty’s betrayal with his unfounded attack on Income Trusts or with your inability to dig the facts on the issue.
There have been numerous industry reports refuting the ‘tax leakage’ myth that Flaherty propagated yet the Flaherty could only produce 18 blacked out pages. Have you considered why Flaherty can’t produce any proof? Have you considered that he Lied to us and to you? As a reporter I would expect the least you could do is a bit of investigative journalism before spouting off in support of an ill thought and badly implemented tax policy. Don’t you think the government should be accountable for important tax legislation, particularly when it has such profound impacts?
Have you considered why the new tax only applies to publicly traded Income Trusts and gives a pass to private pension plans? Is that Tax Fairness? Why are the 30% of Canadians with private pensions exempted while the 70% that fend for themselves are clobbered with a tax of 31.5%?
You state “ But imagine the jackpot we'd be in if Canada's largest tax-paying companies had been allowed to avoid most of those taxes.” Have you looked into how much tax Bell and Telus actually paid? Have you considered that unit holders pay tax on trust distributions at their marginal rate, much higher than the average corporate tax rate of 7% (from Stats Canada)? Do you see a flaw in your statement?
You state “The hole would be much deeper… the muskeg much stickier.” Can you please provide some numbers and analysis to back up this claim?
You also state “A lot of people lost a lot of money when the income trust sector sold off following Oct. 31, 2006, and the way it happened is regrettable.” If it is truly regrettable then why has there been no movement from the government to mitigate the damages? Flaherty did not bother to look at options for implementation or ways to minimize damage. In the recent budget not even an attempt to extend the deadline.
And finally you state “But, without the Halloween Surprise back then, we could very well be living a nightmare now.” Well Michael, you are partially right. We are living a nightmare now. Income Trust investors have been living that nightmare since the Halloween betrayal and you along with the rest of the country are just beginning to feel our pain.
Have you considered that asking these companies to convert in this period of economic recession will just hurt them more? Have you considered the number of capital losses that will be triggered by the conversions and what that will mean to government revenues? I for one am recovering all the capital gains taxes I paid over the last three years…I doubt I am alone.
It was said in 2006 that Flaherty knees jerk reacted and did not do his homework. Here we are 27 months later and you still have not done yours. That sir is inexcusable for a member of the media.
Comment from Les from Collingwood
Michael do you just make this stuff up? Do you do any research at all?
"BCE pays enormous corporate taxes and Ottawa did not want to lose that revenue stream."
This is false, the reverse is true, BCE would have paid $2.6 billion more as an income trust than as a corporation.
The back to back announcement of conversions into income trusts by Telus (on September 5, 2006) and BCE (in October 2006) provided an excellent backdrop for Mr. Flaherty to shut down income trusts. The Finance Minister told Canadians that the conversions of Telus and BCE from the corporate model to the income trust model would threaten the very foundation of Canada's tax collection. When it was correctly pointed out at the time that neither Telus nor BCE had paid any corporate taxes for some time, we were assured by our Finance Minister that both of these companies were on the very verge of becoming taxable and these imminent taxes would be "lost". That was early November 2006. No less than six weeks later, we learn from a BCE press release that BCE was able to reconfigure their corporate structure such that they wouldn't pay any taxes whatsoever for 4 full years. Not long thereafter, Telus revealed that it wouldn't pay taxes for 2 full years. Given theses corporations adeptness at sheltering themselves from taxes so quickly, who is to say 4 years won't become 10 years and 2 years won't become 5? It's clear that our Finance Minister hasn't pursued this question. Leaving this conjecture aside, it is very revealing to calculate the actual amount of tax that was foregone by Ottawa as a result of Flaherty's standing in the way of BCE's and Telus's conversion into income trusts.
This is a very simple analysis to conduct. As you can see below, Ottawa would have collected $2.7 billion more in taxes from BCE over the next four years as an Income Trusts (relative to zero as the corporation it will remain) and $1.1 billion more in taxes from Telus over the next two years as an Income Trusts (relative to zero as the corporation it will remain) for a total loss in taxes of $3.8 billion.
35% Canadian tax deferred
50% Canadian taxable
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:
Foregone Capital Gain on Conversion to Trust:
$428 million (based on $5.00/share gain)
Total Foregone BCE Taxes:
Thursday, April 23, 2009
Posted by Fillibluster at 8:48 AM