Andy Willis of the Globe had the following observation in today’s paper:
“To date, financial buyers have dominated income trust takeovers. As the trust sector winds down ahead of a new tax regime, many of these companies are being swallowed by pension funds and private equity players. that put a high value on these cash-spinning plays. The coming battle for Enerflex Systems Income Fund will mark a welcome change in this trend.”
(1) Yes it will mark a welcome change, perhaps to Andy, because every other trust takeover to date has proved what that Globe had predicted would happen to these undervalued trusts to be completely WRONG. The Globe had naively thought these trusts would simply revert to corporations, when all the knowledgeable people (myself included) had said from the OUTSET that these trust were sitting ducks for the pension plans and foreign private equity and offshore buyers.
(2) Again the Globe has a difficult time admitting and reporting on the truth, with the comment that “swallowed by pension funds and private equity players. that put a high value on these cash-spinning plays.”
This is OBFUSCATION at its worst, and is intended to divert people’s real attention from the HARD FACT that pension funds (like the one that manages the Globe reporters pension fund) can acquire these trusts and be completely exempt from Flaherty’s 31.5% tax, whereas the 75% of Canadians without pensions CAN NOT and will pay an additional 31.5% tax. Does Andy not understand the simple concept that one holder who DOES NOT pay a 31.5% tax will value that asset at a higher value than the current holder who does pay the 31.5% tax? This value disparity has NOTHING to do with what Andy Willis is insinuating and everything to do with Flaherty’s UNLEVEL PLAYING FIELD that favours pension funds and foreign private equity over Canadians taxable investors and RRSPs.
These buyers place a “high value on these cash-spinning plays” for the simple fact that they DO NOT PAY the 31.5% income trust tax, whereas average Canadians do. This is Harper and Flaherty;s idea of a Tax Fairness Plan, Tax average Canadians’ savings, and give tax breaks to pension funds and foreign private equity.
Of course these buyers will pay more for these trusts' cash flows, since these "exclusive" and "tax favoured" buyers get to keep 100 cents on the dollar of these trusts' cash flows, whereas Canadian investors only get to keep 68.5 cents on the dollar of these trusts cash flows, starting the year 2011. Is that too hard a concept for Andy Willis to wrap his mind around and report correctly on?
Come on Andy, show us you aren’t so gullible and naïve. Try to report the truth for once and explain to your readers what a complete fraud this income trust tax is. From the fraudulent argument about tax leakage. To the fraudulent argument that this tax would level the playing field, when in fact, it achieve the opposite, and only served as a form of grease for the pension funds and private equity to rip off Canadians investors and all Canadian taxpayers. This exemption for the pension funds was their form of policy payola for supporting Flaherty’s absurd and grotesquely unfair income trust tax, as per this press release from Ontario Teachers of November 1, 2006:
Teachers' response to new federal income trust policy
The Ontario Teachers’ Pension Plan has advocated for a taxation policy on income trusts that does not discriminate against pension funds [just against RRSPs and the 75% of Canadians without pensions, the people we consider suckers*] , and we are pleased to see that this is the case with the government’s announcement yesterday (October 31, 2006).
The reality is that, in a protracted period of low interest rates, it is important to find alternate investments with yields that help make up the difference. Income trusts have allowed us to do that in recent years. The challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them. The four-year implementation period for this new policy will enable us to gradually make any necessary adjustments to our portfolio.
There is good news for pensioners and other seniors over age 65 in this new policy [but which has no bearing whatsoever on the returns that Ontario Teachers' will generate, but we were asked by Jim Flaherty to make a glowing statement anyway to help him politically*] which will help take the sting out of the new tax policy on income trusts for them [except it only benefits people with "pension income" who were the least likely people to hold income trusts in the first place, and therefore this income splitting is nothing more than a smokescreen as it does nothing to benefit income trust holders, but rather the 25% of Canadians and politicians with pension plans*]: the age exemption tax credit will be increased by $1,000 and income splitting will be permitted.
Director, Communications and Media Relations
Ontario Teachers' Pension Plan
* Editor's note
Wednesday, October 21, 2009
Posted by Fillibluster at 9:09 AM