Tuesday, January 19, 2010

This article is a CON smoke screen.

The Post has a Jim Middlemiss article today that could only have been written at the behest of Jim Flaherty as it advances the feel good premise that “Switching trusts not expected to take hit”, which is simply an attempt to redefine the trust issue on grounds that Flaherty thinks he has some lame argument to make, now that his tax leakage argument has been exposed for the fraud that it is and now that the Marshall Plan serves to call Flaherty’s bluff about the real reasons he pulled this heist off, namely for Big LifeCos and corporate CEOs intent on preserving their abusive corporate “gaming” model

Meanwhile: So what! This lame argument of Flaherty’s changes nothing, as he can’t make the same claim re tax collection, caused by continued foreign takeovers of trusts, OMERs buying more Teranets to evade the 31.5% tax that the previous owners of Teranet got nailed by etc etc. Canadians don’t want corporations, along with all their abusive investor practices. Canadians want Profit sharing income trusts, otherwise we would have bought corporations in the first place!

Plus the logic and math employed is all skewed to contort a false argument and leave a false impression that ignore all the lost value to date from Halloween 2006, as if it never occurred. Furthermore one lousy company does not make for any conclusions, when all the examples suggest otherwise. Duh. This article is a CON smoke screen, written by a lawyer no less! Like he understand numbers! Just like Flaherty does, I guess?

Jim Middlemiss would do himself, his profession, and his readers a greater service if he wrote about something that lawyers should understand, and that would be the matter of “tax arbitrage” that exists because RRSPs pay the 31.5% tax and pension funds do not, and are merrily ripping off investors by taking these public trusts private. No understanding or facility with numbers are required apart from knowing that 31.5% is greater than zero and that water flows in the direction of gravity. Same with money and tax arbs.

Rather than writing about numbers that is not his forte, I challenge Jim Middlemiss to write about this grossly unfair “tax arbitrage” and explain to his readers how that is a “tax fairness plan” or anything remotely like “leveling the playing field”?

Switching trusts not expected to take hit

Decima survey
Jim Middlemiss, Financial Post Published: Tuesday, January 19, 2010

Data delayed at least 15 min

On the day units of Enterra Energy Trust surprised the markets by leaping 26% on news it would convert into a corporation, a survey of income trust executives suggests the days of steep declines after conversion announcements might be coming to an end.

The Decima Research survey, conducted on behalf of law firm Stikeman Elliott and capital-markets communications firm BarnesMcInerney, surveyed 82 senior executives at income trusts between Nov. 16 and Dec. 4, 2009.

It found that 49% don't expect to see any change in market valuations for converting to a trust, 39% expect valuations to decrease and 10% expect valuations to increase.

Of the respondents, 84% expect conversion to a corporation to trigger a reduction in their payouts to investors. Unit distributions, a type of monthly dividend that is not taxed at the corporate level, are the main reason average Canadians hold these investments.

But Andrew Kondraski, a vice-president at BarnesMcInerney, said despite the possible drop in distributions, "executives are confident that their efforts will help maintain their current share values."

About 165 companies still trade as trusts on Canadian exchanges and many of those are expected to convert to corporations this year to meet the Jan. 1, 2011 deadline when Ottawa will start taxing trusts.

Income trusts took a drubbing after the federal government's October 2006 Halloween announcement. In the year that followed, trusts that announced they were giving up their special tax status were usually greeted with an immediate double-digit unit-price sell-off.

However, Enterra's share price rose after it announced yesterday that it would convert to a new company called Equal Energy Ltd. and adopt a growth strategy as an exploration and producer company.

Enterra's move is subject to unitholder approval and the company hopes to complete the conversion by May 31, 2010.

A Financial Post review of income trust conversions in early December found mixed results in the performance of trusts that converted after Jan. 1, 2008. From the date of announcing their conversion until early December most of the 22 converted trusts ended up with an increase in share price.

The Decima Research survey suggests that income trust executives are still looking for ways to avoid paying tax, said Simon Romano, a lawyer at Stikeman Elliott in Toronto.

Mr. Romano noted that 83% of executives surveyed said they would consider a tax-loss acquisition as part of their conversion to a corporation, which he said would help them avoid paying taxes in the future. "People aren't giving up on trying not to pay taxes."

If the executives are correct, investors can also expect more merger and acquisition activity around trusts in 2010, as two-thirds of survey respondents predict an increase in such activity leading up to the 2011 deadline.

Many executives also expect the shareholder base of those owning the converted companies to change, with 65% expecting a "modest" turnover in their investor base and 29% expecting a "significant" turnover.

The survey also found that conversion to a corporation is the number one issue facing trusts in 2010, according to 65% of those surveyed. That's followed by changes in taxation, cited by 23% as the number one issue and distributions, cited by 12%.


Dr Mike said...

How on earth do we get all these so-called financial expert lawyers plaguing our lives??

How on earth is a lawyer qualified to talk knowledgeably about this stuff in the first place.

We have accounting firms telling us that there was no leakage yet people believe lawyers like this fellow , Flaherty & Mulcair.

Many of us in the CAITI group have researched the field of income trusts till we know this thing inside & out , yet guys like Flaherty give it part time attention at best.

Maybe lawyers do have something going for themselves when I think about it , as they gave themselves a carve-out----most run flow thru private group practices which will not be subject to the flow thru tax.

I guess it just sucks to be us.

Dr Mike Popovich

Anonymous said...

To: Brent Fullard
Subject: Re: This article is a CON smoke screen.

Enterra is a contrived example, it has gone from $34 to under a buck, now at $2.72. It was a sham operation that has finally just reached its real value, trust or corporation The article uses way too short a time frame to make their single data point argument and relies on a survey of trust issuers no less. Could it be any less credible if Middlemiss tried? Meanwhile where is the consideration in this article or in Ottawa about the INVESTORS, who incidentally OWN these trusts and employ these CEOs to run them. It’s the world upside down, as Eliot Spitzer has been commenting on. When will the politicians and press catch up with true reality: After the next Global Financial Meltdown, or before?

Harry Levant

Anonymous said...

Tell that to Contrans, they converted on Dec 3rd. Maybe this idiot wants to make up the difference to make his assertions correct.



Anonymous said...

"The Decima Research survey suggests that income trust executives are still looking for ways to avoid paying tax, said Simon Romano, a lawyer at Stikeman Elliott in Toronto."

From an FP article in today's edition...

'avoid paying tax' ? WOW! This article has a way of sending out the wrong message and sway public opinion on Income Trust's.
Half truth reporting at it's finest...


Anonymous said...

"WOW! This article has a way of sending out the wrong message and sway public opinion on Income Trust's"

Didn't you know, corps look for tax efficient strategies while trust try to avoid taxes.