Investorial

As the dust settles, Income trust investors are temporarily victorious over the federal government in the issue of Income Trust taxation. Turmoil has gripped the investment community ever since finance minister, Ralph Goodale, announced that he was re-examining the issue and suspended advance-tax rulings to companies that wanted to convert to an income trust structure.

Today, in a blatant pre-election move, Ralph Goodale succumbed to political and the financial community’s pressure, and announced that no taxes will be planned on trusts. Certainly, the pressures were more political in nature as the minority government prepares to be defeated in the House of Commons in the near future.

The finance minister, still looking for ways to level the playing field for corporations, cut dividend taxes - a move that has been much demanded by shareholders for a while. A winter election is inevitable and making the public happy with favourable tax policies is a survival tatic that must be employed by the Liberals.

My two cents? I am certainly in favour of the Income Trust structure. In my opinion, it brings focus to a better (but often unused) way to measure a company’s financial growth/health - cashflow. Cashflow analysis is a big part of how value investors assess a company versus the mass obsession over earnings per share. Dividend tax cuts will also benefit value investors as dividend-paying companies are often a big portion of our portfolios.

BUT BEWARE! The best thing and also the worst thing about tax laws is that they can change at anytime; for the better or for the worse. There is no guarantee that Income Trust taxation will not be revisited if a new government is installed or if the Liberals are reinstated into power.

Globe & Mail: ‘Goodale cuts dividend tax, wavers on trust reform’
Globe & Mail: ‘How the pensions won again’

Related Posts:

• Trust The Trusts?
• Income trusts still going strong?
• Dividends vs. Trusts
• CIBC Fund Name Changes - Income Trusts Falling Out Of Favour?