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 ...
Just an observation, but I cannot believe some of the dumb stuff that journalists are writing about this inept tax proposal. Apparently many journalists learn nothing about economics and business when they're in college. Instead, they learn liberal dogma about how to restrain the economic growth and prosperity generated by the free enterprise system.
That's what the policy will be. The change applies to all new income trusts while the existing trusts are getting a few years before they face the new tax.
In the long run only the speculators will get screwed, as the share prices are already starting to recover from yesterday's panic. The capital losses won't be too bad for those who didn't panic-sell yesterday and the losses that unitholders do incur will be at least partially offset by reduced personal taxes on the distributions. As the other poster here said, now is the perfect time to buy.
The problem is that the four year time before the proposed tax increase hits the energy trusts is a relatively short time in financial analysis. The valuation of these trusts depends on the next 15 to 20 years of expected cash distributions, so this four year delay before the tax increase isn't nearly long enough to prevent a drastic decline in the market value of these trusts. (I did this kind of financial analysis in one job for a few years.) I don't know what Flaherty was thinking with this four year "grace period," because that's nowhere near long enough to prevent a massacre of these trusts in the financial markets. To prevent this massacre, he should have proposed at least a 10 year delay before existing trusts are hit with the tax increase.
Terence Corcoran could hardly be described as "liberal".
Your point is valid and I wouldn't be surprised if they extend the grace period.
I think your rule is probably quite smart. My friend has quite a large part of his portfolio invested in various Canadian trusts, so I will not be disturbing him in the next few days. I imagine he is in a less than cheery mood right now ...
The share prices bounced a little at the end of the day, but that could be just short covering by short sellers who were betting on lower oil prices. Most brokers are predicting about a 20-25% decline in the market value of these trusts. That said, traders could already be speculating that Harper's administration will negotiate a longer time before the tax increase hits existing trusts, as I have argued for in this thread. That kind of speculation could be causing a slight bounce in these trusts. If Harper does step back and extend the time before the tax increase to at least 10 years, then you should see a big rally back up. I'll be watching developments closely, and also because I think oil is probably going higher after the election, driven by increased tension with Iran.
It has a great yield. So to do the math, if we assume a 30% tax rate, trusts should be trading 30% lower because of this decision? Then again it won't come into effect for a few years, so do we need to be down that much?
Why have trusts appreciated so much? Is it because their distributions have been increasing due to oil prices increasing?
I do not see this.
Something had to be done before every large corporation in Canada became a trust.
Something had to be done, this was something, therefore it had to be done: -- The precautionary principle in action.
The brave and principled thing would have be to stop the conversion of corporations to trusts, and then re-examine the criteria for trusts. It isn't brave and principled to screw over so many people in a panic about lost tax revenue, especially not if the worry is future conversions.
Don't you think they thought of this? It was apparently rejected for some reaso. Probably, as already discussed, because a company seeking to trust could just buy out a grandfathered trust and merge into it.
There's no excuse for the unfairness and ineptitude of this tax proposal. This proposal will clearly crush down trust valuations and make it difficult for trusts to acquire energy properties, and therefore make it easier for large energy corporations to acquire oil & gas properties. I think somehow part of the real rationale for this draconian proposal is elimination of the advantage in valution and acquisitions that trusts had a week ago. This decision appears to be heavily influenced by large corporate interests.
You got that right! I only lost several thousand dollars and I'm not feeling too good about it.
Anyone who makes assumes that investments directed towards tax avoidance isn't high risk is a fool.
Fools and their money are soon parted.
I'm a trader in Calgary and we were laughing all day about this......
All the easy money (something for nothing) people got swiped as they should. Doesn't matter if they are pensioners or not. Dumb, reckless people of all ages lose their money one way or another.
Anyone who invests according to a tax loophole without looking at the fundamentals deserves to lose money. Anyone who thinks loopholes don't eventually get plugged doesn't read their history and deserves to lose money.
"Anyone wanna come to BMW Gallery with me after work" was the mood in our office this week.
Just wait until the irrational exuberance subsides with the residental real estate. People dumb enough to put most of their portfolio in one fixed asset deserve to get burned.
FYI, I only had a small percentage of my assets in Canadian energy trusts, so I can afford this loss and it only offsets a little bit of the profits I've made in conventional energy stocks over last last four years.
But a trust structure is not really a loophole. REITs have been an established corporate structure in the US for about 30 years and that structure is considered a permanent part of the tax law and nobody thinks of that as a "tax avoidance scheme." I did some research into Canadian royalty trusts and most knowledgable people sounded like they considered these trusts similiar to US REITs, which were not going to get hit with a tax law change. Nonetheless they didn't sound completely sure of this so I only put a few percent of my assets in these trusts and I sold much of that in September.
I would agree that nobody (especially retirees) should ever put a large percentage of their assets in any one company or any one type of investment. That's a dumb thing to do and this episode reminds me of the Enron debacle when some people had way too much money invested in Enron. Nonetheless this is an inept and clumsy proposal that should have included a 10-15 year delay before the tax rate was increased on enegy trusts.
What do you think of that guy at Ammaranth hedge fund who lost $4 billion on natural gas trades? It sounds like the trades they were making were way too big for the size of that fund. I stick with the 0.5% rule...I never make any one trade bigger than 0.5% of total assets.
There has been some irrational exuberance in real estate and some people will take big losses, but I've seen it before. I remember people buying townhouses in my neighborhood in California in 1988 for $290K and five years later those townhouses were selling for $225K. Man, that is really taking a beating on an investment. You have to be careful what you pay for any investment, especially a big one like a house.
I think my neighbors who paid $290K for townhouses in 1988, if they still own those houses, are probably back to about even after 18 years even with a little slippage in the last few months. Sometimes persistence pays off...lol.
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