CAITI: Happy third anniversary!

Investors' coalition aims to kill income trust tax.
Says “tax leakage” is a myth.

STEVEN CHASE AND SINCLAIR STEWART
Globe and Mail
Jan. 14, 2007

A broad coalition opposed to the Harper government's income trust tax has joined forces in a single new lobby group dedicated to killing the levy: One that unites sectors from the oil patch to lawyers to Bay Street money managers.

Founding members of the Canadian Association of Income Trust Investors (CAITI) include CI Investments, PricewaterhouseCoopers and Gluskin Sheff + Associates.

News of the lobby's formation came as opposition parties prepare to make a bid tomorrow to call public hearings over the minority Conservation government's controversial income trust tax, a move that could reignite public debate on it.

Executives from a broad swath of the financial sector expressed cautious optimism that the trust issue was beginning to reverberate more powerfully with other parties.

“Up until today, I thought this was a dead issue,” confessed Bill Holland, chief executive officer of CI Financial Income Fund, one of the country's biggest trusts. “But clearly it's come back again.”

Money manager Ira Gluskin said: “I'd say this thing is not dead.”

The Commons finance committee will meet tomorrow morning to vote on an effort by the Liberals and Bloc Québécois to force special parliamentary hearings on the levy.

CAITI aims to provide retail investors with a lobbying voice, while groups such as the Canadian Association of Income Funds (CAIF) and the Coalition of Canadian Energy Trusts take an industry perspective.

Prominent income trust investor Sandy McIntyre, a senior vice-president at Sentry Select Capital Corp., said retail investors, who own the bulk of the roughly $200-billion trust sector, have not been heard from in the current debate.

“They're not part of this discussion,” he said. “They've been ignored.”

Mr. McIntyre said he was optimistic that government and the private sector could arrive at a “rational, pragmatic solution” to the trust conundrum, but insisted he was not interested in a mere extension of the four-year, tax-free grace period for existing trusts, as some seek.

“That doesn't solve the problem,” he said.

The Liberals called tomorrow's committee meeting — even though Parliament is not sitting — to vote on whether to call witnesses as part of a reconsideration of the tax.

The Liberals and Bloc want Parliament to consider whether the tax-free grace period should be extended to 10 years.

The Liberals also want to probe Mr. Flaherty's claim that income trusts were costing Ottawa $500-million in uncollected tax revenue each year — as well as explore the possibility that energy trusts should be exempted from the levy.

These questions are still material because the minority Tory government has yet to pass legislation enabling the tax, and opposition parties could collaborate to alter its provisions, including the tax-free grace period for existing trusts.

CAITI's president Brent Fullard, a former head of equity capital markets at BMO Nesbitt Burns, said Ottawa's assertion that trusts are responsible for “tax leakage” is a myth. He said Ottawa must be forced to defend this as well as the claim that trusts are bad for productivity, an allegation he says remains unproven.

The lobby group's website — caiti.info — went live Monday. Other founding members include energy trusts, Borden Ladner Gervais, Dynamic Funds, Acuity Funds, Citadel Group of Funds, Brompton Funds and Lawrence Asset Management Inc.

Mr. Flaherty has repeatedly refused to entertain the possibility of granting exemptions from the tax.

One member of the new group said he felt it was important to show support for this latest lobbying salvo, even though he believes the chances of melting Mr. Flaherty's resolve are virtually none.

“Would I like it go to 10 years,” he asked, referring to the trust sector's request for the grace period to be extended beyond four years. “Absolutely. Will it happen? No chance.”

Mr. Fullard, who helped found the group, has been busy building opposition to the tax since it was announced last Halloween night.

“To the naked eye, it did look as though [Mr. Fullard] was spitting into the wind,” said Mr. Gluskin, president of Gluskin Sheff + Associates Inc., which signed on to the lobbying effort last week.

But Mr. Gluskin said he has seen a sliver of possibility open this week with the Liberals attempting to force parliamentary hearings on the trust crackdown.

“I wouldn't underestimate this guy,” he said of Mr. Fullard, who has been on a one-man e-mailing mission with investors, Bay Street types, and journalists. “Take my word for it — he is persistent. He'll track you down.”

Heading into tomorrow's committee vote on hearings, the Liberals and Bloc together have six votes on the 12-member committee while the NDP has one and the Tories have four, not including the Conservative chair, who only votes in the case of a tie.

NDP finance critic Judy Wasylycia-Leis said she's leaning towards “not opposing” the hearings.