Globe says Flaherty's tax leakage is PURPORTED tax leakage? WTF!

The Globe has an article today that is aptly titled “Tinkering under the hood, or complete overhaul” in which the author refers to Flaherty’s central premise of his income trust policy of tax leakage as being “purported” tax leakage.

Purported? WTF!

You mean to say that we are three years into this policy with less than a year to go and the central premise of tax leakage has not been proven to exist? How can this be, when we had the CBC parroting Flaherty’s tax leakage lies on The National less than two weeks ago like they were the god given truth? Is Canada a democracy or is Canada a dictatorship? If Jim Flaherty said the world is flat, would we all believe him? Where is his proof of tax leakage?

Purported: –verb (used with object) to present, esp. deliberately, the appearance of being; profess or claim, often falsely: a document purporting to be official.

The analogy of someone tinkering under the hood of a car is very appropriate. How do we know that this shade tree mechanic (Flaherty) is competent or not? How do we know whether the oil leak that he talks about under the hood requires the entire engine to be replaced as he claims, or whether the oil leak that he speaks about wasn’t caused by his own incompetence as he poured oil from the can all over the engine rather than down the oil filler spout?

Purported tax leakage?

This is demanding of a major investigation. Purported tax leakage is hardly the basis on which to destroy $35 billion of Canadians savings.. Purported tax leakage is hardly the basis on which to deprive the 75% of Canadians without pensions an essential CHOICE, based on some dogma about tax leakage. That’s no different than depriving women of the right to choose, based on some religious dogma imposed by one sanctimonious group onto the affairs of another.

The entire sentence in today’s Globe concerning purported tax leakge reads “The tax-law change, announced in October of 2006 to stop purported “tax leakage," was also intended to level the playing field and make trusts subject to the same income tax as standard corporations”. This messaging of “leveling the playing field” is a most insidious and misleading one, as it reveals the underlying deceit of what this policy is all about and how Canadians are being completely bamboozled. Ask yourself, on what basis should the playing field be established as being “level”, if not some parameter or dimension that is of concern to all Canadians and affects all Canadians in a potentially adverse way? One such basis for determining whether the playing field would be level or not, would be whether income trusts cause tax leakage, making these two objectives one in the same, rather than distinct. What else could leveling the playing field be about if not tax leakage and be of concern to all Canadians, such that these dracomian measures of eliminatin essential investment choice would be just and appropriate?

This observation also places a premium on knowing whether tax leakage is real or not. If the purported tax leakage argument falls away, then Canadians need to know what purpose this policy is now being intended to serve and what justification there is for this policy? Perhaps “leveling the playing field” is simply corporate babble speak for “CEO’s want to keep their horrendous and obscene compensation schemes only permissible under a model of ownership as easily manipulated and abused as the corporate model”, or some such other self interested goal, as I know it to be? Would that objective provide a valid foundation in the minds of Canadians to have enacted this policy in the first place or to allow it to continue today of for Jack Layton’s support? Why are we implementing tax policy on something so vague and nebulous as “leveling the playing field” without even knowing what we are even talking about?

In any event, Canadians need to be told the truth, and not allow major tax policies to be allowed to proceed based on mere suppositions or PURPORTED truth. “Purported” is hardly the threshould test for anything, apart from being the basis to test such hypothesis with more investigation and analysis.

For those like Flaherty who speak the babble speak about “leveling the playing field” and are so seemingly concerned about the conduct of fair play, are Canadians not even entitled to knowing the truth about something so infinitely provable or disprovable as tax leakage? Are Canadians so gullible and the state of Canada’s democracy so fragile and marginal that we can’t get the truth about this purported tax leakage argument? Why in the absence of proof, are the assertions of government, especially a minority government taken as given, like sermons from the mount? Jim Flaherty’s Ten Commandments? It should be the obligation of government to prove its case, rather than expect Canadians to take its pronouncements as proof, which is like proroguing Canadians right to know and Flaherty’s right to cover up>

Come on media, you have a huge role to play and a responsibility that you have so far ignored on this entire matter. Your conduct to date is no better than the whole US media falling for the nonsense about WMD and the invasion of Iraq and the role played by journalists like Judith Miller of the New York Times in fostering falsehoods about WMD, no differently than people like Terry Corcoran of the National Post fostered Flaherty’s patent falsehoods about tax leakage in order to bring about some nefarious ulterior goal.

Operating a democracy in such a “faith based” manner can lead to disastrous consequences, as occurred with the US invasion of Iraq that was premised on Weapons of Mass Destruction. Flaherty’s income trust policy has destroyed many Canadians’ lives and caused a massive wave of takeovers. This is why proof of tax leakage is demanded and is readily at hand in the way that disproving the possible existence of WMD in Iraq is difficult to do. Unlike disproving WMD, we don’t need UN Weapons Inspectors. We simple need for Canada’s Minister of Finance to provide Canadians with his proof of tax leakage, which is demanded of him, especially given his touting the importance of improving Canadians’ “financial literacy”. Improving financial literacy is putting the cart before the horse for a Finance Minister whose every action is to keep Canadians in the dark, with his 18 pages of blacked out documents that only served to corroborate our claim that there is no tax leakage, so Flaherty demanded they be returned, but whose lies are still available for all to see here: http://caiti-online-media.blogspot.com/2007/04/to-finance-minister-flaherty-your-tax.html



Tinkering under the hood, or complete overhaul?

Income trusts could face deep management changes as they get ready for 2011 conversion deadline

David Milstead
The Globe and Mail
Thursday, Mar. 18, 2010

Trusts that convert to standard corporations will be able ‘to attract non-Canadian investors on a greater scale,’ says John Krukowski of KPMG in Toronto.

As the golden era of income trusts draws to a close this year, many will choose to become traditional corporations. Yet while the conversion should be nearly seamless, the new entities may be entirely different animals from their predecessors.

At issue: Will a former income trust maintain a semblance of its healthy yield? Will its management move away from a cash-generation model to embrace aggressive growth strategies? And will the company change its executive-compensation practices as a result?

Investors will likely focus on the first question, watching for news of what today’s income trusts plan to pay out in 2011 when their distributions are no longer tax-deductible at the corporate level. The other changes may be more subtle but will add up over time.

To be clear, income trusts aren’t necessarily going away. The tax-law change, announced in October of 2006 to stop purported “tax leakage," was also intended to level the playing field and make trusts subject to the same income tax as standard corporations.

It’s not a given that an income trust will convert, says John Krukowski, the income-trust tax practice leader at KPMG in Toronto. Some may have significant streams of income that won’t be subject to the new tax rules, and other small income trusts may find the costs of converting to a corporation cost-prohibitive. And real estate investment trusts (REITs) can continue to “flow through" their income to shareholders even under the new rules.

“It’s fair to say making the change isn’t generally tax-driven; it’s more capital-markets driven – the ability to borrow, to issue equity, to attract non-Canadian investors on a greater scale," Mr. Krukowski said. (Income trusts must maintain a majority of Canadian unitholders to preserve their status; there is no similar requirement for a stock corporation.)

That suggests, however, that some of the biggest income trusts may be the most likely candidates for conversion. While some trusts have already made their announcements, Mr. Krukowski notes “many are seeking to delay the change to the end of 2010 in order to maintain the existing benefits."

Since a trust will need to hold a shareholder meeting and go through other legal formalities that can take several months, the wave of conversion announcements should crest in late summer.

To Brent Fullard, the founder of the Canadian Association of Income Trust Investors, the income trust structure was itself a “governance overlay" that investors favoured because the payout requirements imposed discipline.

“Management had to pay out the earnings" rather than spend excess cash on big acquisitions or other risky projects, Mr. Fullard said. The trust structure was a way of investors saying, “Hey, instead of you blowing up this excess cash, why don’t you deliver it to me?"

Adds James A. “Sandy" McIntyre, the chief investment officer of the Toronto-based fund company Sentry Select Capital, “The excess capital and income was returned to the owners of the business: not management, not shareholders of some other company that management bought, but the equity investors whose capital was at risk. Strange that a structure that rewards shareholders is eliminated while structures that reward entrenched management are supported."

Mr. Fullard notes that a trust that moves into the world of stock corporations may revise its executive compensation programs. Trust executives are typically measured by the ability to deliver cash, and their compensation often reflects that. Mr. Fullard notes a corporation that delivers returns to shareholders through gains in stock price often uses stock options as a significant component of executive pay.

A change in growth strategy or a shift in compensation may only become evident over time, however. More pressing is whether an income trust will maintain its significant yield in 2011.

The equity analysts at Canaccord Adams have looked at trusts in each industry sector, trying to forecast which will maintain their payouts and which will cut them.

REITs will overwhelmingly retain their flow-through status, leaving them the least affected, Canaccord says. The firm doesn’t expect any distribution cuts in the power and pipeline trust and limited partnerships sector, even if the trusts convert to corporations.

“The groups which appear most exposed appear to be business trusts, which do not have any significant tax shelter," the Canaccord analysts wrote in a report earlier this month.

“We expect many will reduce their distributions by 20 to 30 per cent as they become taxable and are expected to convert to corporations."

That isn’t necessarily a problem for investors who hold their income trust shares in taxable accounts. If what’s now a trust distribution becomes a corporate dividend, the payment will be eligible for offsetting dividend tax credits. Notes Canaccord: “A taxable individual investor remains in the same position on an after-tax basis when it receives a $1 dividend from a corporation instead of a $1.22-to-$1.43 cash distribution from an income trust."

It’s investors who hold trusts in RRSPs who have the problem. They can’t utilize the tax credits since their RRSP account is not taxed. So if their distribution gets cut when a trust becomes a corporation, their take will decline.

Once investors get the tax ramifications sorted out, Anthony Scilipoti, executive vice-president at Toronto-based Veritas Investment Research Corp., suggests they focus on the basics.

“The sustainability of the cash flow of the underlying operation is what matters," he says. “Whether it’s a trust or corporation, all that does is add a layer of taxation. The key is the health of the underlying operation."