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Posted on 11/02/2006 12:02:17 PM PST by defenderSD
Roger Brown has long been a Conservative Party member and donor, but not any more. Not after losing about $100,000 on his investments Wednesday because of Finance Minister Jim Flaherty's decision to tax income trusts.
“It's the biggest loss I've ever experienced,” Mr. Brown said from his home in Nanaimo, B.C., as he watched 10 per cent of his life savings vanish. “The credibility in my mind of the Conservative Party has gone right down the toilet.”
Mr. Brown, 51, ran a small business before selling it a few years ago. Now, because of the income trust situation, “I guess I might be looking for a job now.”
(Excerpt) Read more at theglobeandmail.com ...
That should read: The problem IS that a lot of people are being hit with large capital losses that they can't afford.
Because existing trusts would be cannibalized for their grandfathered status.
A better approach would be to extend the 4 year period to, say 10 years, which I believe is what the US did when they made the same change to US tax laws.
Note that current proposal is likely a bargaining position, and there will be ample opportunity to compromise.
I'm viewing this as a buying opportunity, and have averaged down in my existing COS holdings, bought some Sound Energy Trust (SND.UN-TC or SNDFF), and am looking at Penn West (PWE).
What do you mean exactly by, "existing trusts would be cannibalized"? I agree that if there's no grandfather clause the transition needs to be at least 10 years from now. I can't believe how clumsily the Harper government has handled this proposal. They're generating chaos in the financial markets and screwing people out of billions of dollars in savings.
It sounds to me like this is going to make the Canadian corporate tax structure more similar to the U.S. tax structure -- by taxing corporate income at the full corporate tax rate.
BTW, do you know if COS trades on US exhanges? I can access Toronto but I don't do so now because of extra data fees.
I buy COS using the Pink Sheets symbol COSWF. See if your broker handles it. The actual shares are completely equivalent, but the market is thinner so spreads are wider.
Be sure to buy in a tax-deferred account (IRA, etc), since the dividend will not have the additional 15% withholding taken out (under the new proposal and after 4 years, they currently do take it because the current payment is a "distribution" not a "dividend").
If Harper backs off to a 10-year+ transition time, that should generate a big rally back up.
Suppose Suncor (SU) wanted to become a trust. If they just trusted up under the new regulations, they would immediately have to start paying taxes on distributions.
If they bought out some hideous little grandfathered trust and merged themselves into it, they could avoid the taxes.
Since I manage my elderly mother's funds, I have been watching some of these for awhile, thinking of putting some of my Mom's money in them. Fortunately for me, I did not. I saw the 10% drop today, and looked for the news as to why. I'll stick with stocks & stock funds, both U.S. and foreign, thank you very much.
I thought about the merger and acquisition issue yesterday. I think the way to handle it is to require acquisitions made after the tax increase to remain in a seperate subsidiary that is taxed at the new rate. In the very long run, I think you have to raise the rates on all trusts to keep the tax laws workable, but Canada should take at least 10 years to raise the rates for existing trusts.
Libertarian ping! To be added or removed from my ping list freepmail me or post a message here.
The problem is that the government of Canada set up tax exemptions for retirement accounts many years ago. Any income or gains inside a registered account is tax exempt until withdrawn from the registered account at which time it is included as income.
People and Pension Plans purchased the Unit Trusts as income producing instruments inside their registered accounts thereby deferring taxation till retirement. The government is not so happy all of a sudden that people can actually use the deferment the government took political credit for.
Any non registered income or gains are fully taxable!
So, this government attacked fiscally conservative investors who were trying to use government approved deferment shelters.
They have decimated them.
If you think George Herbert Walker Bush stepped in it with his Read My Lips, then the Conservative Party of Canada has rolled in it, scraped it off and made a sandwich of it.
They are probably starting to recognise this now. If this stands, they will lose probably a million or more voters. They willl do what they did in 1982. They will STAY home.
Now these companies will have to avoid taxes the old-fashioned way - borrowed money and interest deductions!
I have a general rule of only putting a small amount of my investments in any one foreign country because of exchange rate risk and the risk of unexpected political events like this tax proposal. It limits my profits in good foreign markets but it saved me yesterday on this Canadian fiasco. That's a very good rule for investments of retirees.
Please send me a FReepmail to get on or off this Canada ping list.
WHAT A CONCEPT?...
The Canadian government bleeding the sheeple.. like an African tribe of cattle barons..
WHOA...
What happened?
" I don't think any US administration could get the US congress to vote to destroy many billions of dollars of wealth overnight by increasing taxes on a large US industry."
Apparently, you do not remember the 15% one time tax Clinton proposed on retirement 'wealth'.
Also, there is a proposal for either (or both) impuned income or 1% tax on net worth that the liberals are salivating over.
Wake Up, America!!
As far as I'm concerned it shouldn't. Apparently the Conservative government has come to the same conclusion. Note that this proposal goes hand-in-hand with another to reduce corporate income tax rates, in an attempt to have a level playing field. These income trusts were being used in an unintended manner by large companies to avoid some of their tax burden, as compared to others than aren't income trusts. My RRSP is/was probably invested in these too, indirectly, and I'll probably take a bit of a loss there, but I'm in for the long term and expect to make it back eventually.
Yeah, but what do you think of the idea of waiting 12-15 years to raise the tax rates on existing trusts, so as not to destroy billions of dollars in investor savings overnight?
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