How can CBC represent Professor Booth as “neutral” when he gets funding from the federal government?

This arrival of Professor Booth, as the CBC’s latter day expert on “tax leakage” is more than little bit curious on many fronts. How can CBC hold out Professor Booth to CBC viewers as being “neutral” when he gets funding from the federal government, as evidenced by the funding he received from the Social Sciences and Humanities Research Council of Canada (SSHRC) in 2008 to write the paper entitled “Capital Market Developments in the Post‐October 1987 Period: A Canadian Perspective.”?

The SSHRC reports to Parliament through the Minister of Industry.

Even more curious is the fact that this paper discusses the Canadian capital markets success story known as income trusts, contained below. Correctly, Professor Booth states about income trusts that “Investors have been attracted to these high distributions, and income trusts outperformed equities and bonds by a wide margin over long period of time.”

This superior market performance of income trust is what made them the target for destruction by lobbying that was undertaken by Canada’s life insurers who wanted to kill their competition for Canadians’ retirement investment dollars and by CEOs who wanted to avoid the increased discipline required of income trust managers.

Even more curious is that in Professor Booth’s account of the income trust market and its arbitrary termination by Jim Flaherty in October 2006, there is no mention whatsoever about the reasons for Jim Flaherty’s destruction of this highly favoured and uniquely Canadian investment success story? So who prompted Professor Booth to make the completely erroneous claims on CBC of this patent nonsense, in which Professor Booth falsely claimed:

“the whole of the corporate income tax base was possibly at risk, or at least a significant part of it was at risk.” which seemed to indicate that the government took the proper action to tax income trusts.

Judge for yourself:


Capital Market Developments in the Post‐October 1987 Period: A Canadian Perspective
October 2008
Laurence Booth (University of Toronto)
Sean Cleary (Queen’s University)*

* The authors thank the Social Sciences and Humanities Research Council of Canada (SSHRC) for financial support provided for this project.


Finally, we discuss another alternative investment product, income trusts, which are unique to Canada. Income trusts can essentially be viewed as tax‐efficient equity securities that pay out most (all) of the operating income of an underlying operating company that is owned by the trust, which is structured so that it owns all of both the debt and equity securities of the underlying operating company. The capital structure of the operating company is set up so as to eliminate (or nearly eliminate) taxes at the corporate level, provided that the operating income is distributed to the trust unitholders.

Investors have been attracted to these high distributions, and income trusts outperformed equities and bonds by a wide margin over long period of time.

The growth of the income trust market in Canada during the early 2000s was dramatic. As of March 31, 2006, there were 238 income trusts listed on the Toronto Stock Exchange (TSX), up from 73 in 2001, and only a handful in the mid‐1990s. This growth
was reflected in the total market capitalization of these instruments, which grew from $1.4 billion in 1994 to $192 billion by March of 2006, accounting for approximately 10% of the quoted market value of the TSX. In fact, income trusts became the major source of equity initial public offerings (IPOs) in Canada during the 2000’s, often accounting for over half of all new equity IPOs. As a result of this growth and the importance of these instruments, the TSX fully incorporated income trusts into the S&P/TSX Composite Index as of March of 2006.

On October 31, 2006, Finance Minister, Jim Flaherty, announced unexpectedly that the distributions made by newly created trusts would be taxed at prevailing corporate tax rates, and that this new tax would apply to existing trusts beginning in 2011. This
announcement was made just as Canadian telecommunications giants Telus Corp. and BCE Inc. were in the midst of preparing to convert from the traditional corporate structure to the income trust structure, which would have added another $50 billion or
so in market cap to the income trust market. Not surprisingly, both BCE Inc. and Telus Corp. subsequently cancelled their plans to convert to the trust structure, and many other planned income trust IPOs were also cancelled. Indeed, the October 31st
announcement brought a dramatic end to the growth of income trusts, and put their long‐term future in jeopardy.