Canada taxes income trusts -- Review your energy stocks

November 15, 2006

Canada’s Finance Minister, Jim Flaherty, recently announced that Canada would begin taxing all income trusts. These are corporate vehicles generally used by property and energy companies to pass all profits to investors, thereby also passing all corporate taxes in the process.

What It Means:
Share prices of these income trusts plummeted on the initial announcement, rebounded briefly, and are now continuing to decline. It is possible that the government will “grandfather” in existing companies, and not tax them as heavily, if at all. However, the uncertainty has certainly hurt the 247 publicly traded Canadian income trusts, worth $200 billion in market capitalization.

Action Steps:
Check with your financial planner to make sure you don’t own any of these trusts. Look for Canadian-based property holding companies, or energy related companies.

Source: Canada Department of Finance, “Canada’s New Government Announces Tax Fairness Plan”, October 31, 2006.