Trust Funds ...
- Thread starter UberCree
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Not surprised the government made this move in light of the recent announcements by BCE. CCRA/govt would have lost in the area of 800 million bucks in taxes by BCE (although the individual stockholder would have borne the brunt of the tax liability on a smaller scale from the conversion). I'm pretty sure once the bean counters and critics stop grandstanding, they'll see it was a good move from the perspective of the individual stock holder.
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If the MSM has their way, it will become the public perception that it was a bad political move; if people actually educate themselves on the issue and discover that the other parts of the package make it far better for seniors, then it could be a long term positive move. The decision to allow senior couples to split their pension income, starting in 2007, will be of great benefit to most retired military as it will allow a lower overall tax rate.
Bottom line, the new government did what was right, not what was easy or politically expedient - I keep being amazed by that! Hope it continues!
Bottom line, the new government did what was right, not what was easy or politically expedient - I keep being amazed by that! Hope it continues!
Baloo
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Rescue Randy said:
Well, I think the issue that people have with the government, is not so much that it was a good or bad fiscal policy...of which it has been pointed out, by most economists, was a solid decision in light of the loopholes.
However, that being said, the Conservatives never should have made it an election promise not to touch the income trust funds. And now, they have 'broken' an election promise to the voters. Which is what all the hoopla is about.
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muffin said:
If the BCE conversion had taken place I would have taken a soaking in paying the tax liability. As it stands, I'm a happy camper for the moment.
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Although the optics are horrible, and the Conservatives should NEVER have made such a pin headed promise in the first place, this is the start of a long term good trend.
Far too many decisions are being made on the basis of tax "efficiency" or more bluntly, tax avoidance. The longer term goal of the Conservatives is to lower taxes, so taxpayers keep more of their own wealth and decisions are made for more rational reasons than primarily to avoid taxes.
While it could be argued that BCE might have a business case to become a Trust, it isn't clear in many cases this is or was the case, and even in the case of BCE, when converted into a Trust, they would be severely constrained in changing direction in the future since they would literally have no cash for R&D, upgrades or any other changes they might have to make as the market changes.
If this is the start to creating a lower and simplified tax code (single tax, anyone?) then the Prime Minister and Finance Minister need to stand tall and speak out now, while the iron is hot.
Far too many decisions are being made on the basis of tax "efficiency" or more bluntly, tax avoidance. The longer term goal of the Conservatives is to lower taxes, so taxpayers keep more of their own wealth and decisions are made for more rational reasons than primarily to avoid taxes.
While it could be argued that BCE might have a business case to become a Trust, it isn't clear in many cases this is or was the case, and even in the case of BCE, when converted into a Trust, they would be severely constrained in changing direction in the future since they would literally have no cash for R&D, upgrades or any other changes they might have to make as the market changes.
If this is the start to creating a lower and simplified tax code (single tax, anyone?) then the Prime Minister and Finance Minister need to stand tall and speak out now, while the iron is hot.
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Warren Kinsella and other political com mentators suggest this is good political move, others such as Andrew Coyne say it is good economically but bad politically.
I think that it can be spun to look pretty good in the next election, but Andrew Coyne has a good point in that he claims it just makes the Conservatives look like the Liberals in that they make one promise in the election and do a another thing all together when in office.
I think Canadians like a gov't that is not ideologically bound, but rather rooted in practicality. That is why we (OK Ontario) voted in Jean Cretian even though he reneged on his GST and NAFTA promises.
I think that it can be spun to look pretty good in the next election, but Andrew Coyne has a good point in that he claims it just makes the Conservatives look like the Liberals in that they make one promise in the election and do a another thing all together when in office.
I think Canadians like a gov't that is not ideologically bound, but rather rooted in practicality. That is why we (OK Ontario) voted in Jean Cretian even though he reneged on his GST and NAFTA promises.
Brad Sallows
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Politically, I doubt the Cons will move any votes from Lib or NDP supporters. People who didn't already support the Cons aren't going to come running in gushing, "My heroes!" just for this. I suppose a few really pissed-off Con supporters will move to non-traditional candidates or just not vote as a protest. If the Cons felt they had to do it, then politically it was better to do it as early as possible before the next election. It was also necessary to do it now if they specifically wanted to put the brakes on the BCE and Telus conversions (some of the rumours in the media are interesting).
Fiscally, the foregone federal revenue (existing trusts) has been smaller (in some years, much smaller) than annual federal surpluses. The alleged "loss" from the BCE and Telus proposed conversions ignores the fact that neither company has had a net federal payable for the past few years (no idea exactly how many) and that companies can pursue other strategies to pay no tax (eg. a purchase of MTS by either Telus or BCE in order to grab MTS's tax losses is one speculation in media). To count BCE and Telus federal corporate tax revenues is to count a chicken which has not yet hatched. Many people forget that there isn't really any such thing as "corporate" tax - in the end, it's tax paid by shareholders, owners, and employees. Corporate income tax is just indirect personal income tax. From the numbers I've looked at, to have your corporate investments subjected to corporate tax rates and then dividend tax rates is in general favourable to paying straight personal tax rates (22% and 26% regimes) as income. It might not apply for people with stratospheric incomes, but all the sound and fury about corporations paying their "fair share" really supports having investors pay "less than their fair share". I do love irony. Also from the investor's perspective, conversions can result in an immediate capital gains assessment (but that can sometimes be deferred); however, ultimately if you've bought shares or units you will pay capital gains sometime unless you hold them until you die. In the specific cases (Telus, BCE), shareholders complaining about paying the gains have a peculiarly glass-half-empty view: your shares jumped in value and your payouts will most likely be higher year-after-year, but you might have to pay some gains now rather than later. It reminds me of Guard Hadley's attitude toward his windfall in "Shawshank Redemption".
Where there is genuine leakage is to foreign investors. There are deferred taxes for trusts held by pension funds and RRSP accounts; corporate taxes take a chunk out of non-trust investments. (One may argue that in the spirit of fairness, a sheltered investment should be a sheltered investment, period.) And, there are the issues of the true net effects with respect to each province.
With respect to losses, no-one lost anything unless they actually dumped shares/units for less than they paid. The book value of the share valuation write-down isn't really a first-rank indicator of anything except an illustration that to really destroy wealth, you should first become government. I hold shares - when the value goes up I haven't gained anything unless I sell; when it falls, I haven't lost anything unless I sell. People who truly got caught may be those who bought Telus and/or BCE during the share valuation climb-up in the expectation of receiving higher payouts after the trust conversions. The companies made good-faith, considered decisions with respect to the government's stated position, and investors made good-faith, considered decisions with respect to the government and the companies' positions. I guess they get to pay for the governments flip-flop: "my mistake, your fault".
The moral issue of tax avoidance has been mentioned in several quarters in the media. On them, I call bullsh!t. Paying attention to the regulatory structure is as important as paying attention to the behaviour of the markets and any other relevant factors. Working a tax advantage is no less seemly than working any other advantage for which one person might qualify but not another due to arbitrary and perhaps unattainable criteria.
The other stupidity - not meaning to single you out, Arthur - that was widely raised is the idea that passing profits through to investors is bad for the economy and anti-capitalistic and hobbles productivity gains. Everyone who made that claim forgot the meaning of the word "investor". What's bad for productivity gains are weak executive decisions and too much capital in the hands of businesses which can't find uses for capital quickly enough. The entire community of investors, from advisors and fund managers to individuals, constantly monitors opportunities. Who better to make decisions about the allocation of capital? A badly run company doesn't favour the economy by hanging onto its profits (if it has any).
Fiscally, the foregone federal revenue (existing trusts) has been smaller (in some years, much smaller) than annual federal surpluses. The alleged "loss" from the BCE and Telus proposed conversions ignores the fact that neither company has had a net federal payable for the past few years (no idea exactly how many) and that companies can pursue other strategies to pay no tax (eg. a purchase of MTS by either Telus or BCE in order to grab MTS's tax losses is one speculation in media). To count BCE and Telus federal corporate tax revenues is to count a chicken which has not yet hatched. Many people forget that there isn't really any such thing as "corporate" tax - in the end, it's tax paid by shareholders, owners, and employees. Corporate income tax is just indirect personal income tax. From the numbers I've looked at, to have your corporate investments subjected to corporate tax rates and then dividend tax rates is in general favourable to paying straight personal tax rates (22% and 26% regimes) as income. It might not apply for people with stratospheric incomes, but all the sound and fury about corporations paying their "fair share" really supports having investors pay "less than their fair share". I do love irony. Also from the investor's perspective, conversions can result in an immediate capital gains assessment (but that can sometimes be deferred); however, ultimately if you've bought shares or units you will pay capital gains sometime unless you hold them until you die. In the specific cases (Telus, BCE), shareholders complaining about paying the gains have a peculiarly glass-half-empty view: your shares jumped in value and your payouts will most likely be higher year-after-year, but you might have to pay some gains now rather than later. It reminds me of Guard Hadley's attitude toward his windfall in "Shawshank Redemption".
Where there is genuine leakage is to foreign investors. There are deferred taxes for trusts held by pension funds and RRSP accounts; corporate taxes take a chunk out of non-trust investments. (One may argue that in the spirit of fairness, a sheltered investment should be a sheltered investment, period.) And, there are the issues of the true net effects with respect to each province.
With respect to losses, no-one lost anything unless they actually dumped shares/units for less than they paid. The book value of the share valuation write-down isn't really a first-rank indicator of anything except an illustration that to really destroy wealth, you should first become government. I hold shares - when the value goes up I haven't gained anything unless I sell; when it falls, I haven't lost anything unless I sell. People who truly got caught may be those who bought Telus and/or BCE during the share valuation climb-up in the expectation of receiving higher payouts after the trust conversions. The companies made good-faith, considered decisions with respect to the government's stated position, and investors made good-faith, considered decisions with respect to the government and the companies' positions. I guess they get to pay for the governments flip-flop: "my mistake, your fault".
The moral issue of tax avoidance has been mentioned in several quarters in the media. On them, I call bullsh!t. Paying attention to the regulatory structure is as important as paying attention to the behaviour of the markets and any other relevant factors. Working a tax advantage is no less seemly than working any other advantage for which one person might qualify but not another due to arbitrary and perhaps unattainable criteria.
The other stupidity - not meaning to single you out, Arthur - that was widely raised is the idea that passing profits through to investors is bad for the economy and anti-capitalistic and hobbles productivity gains. Everyone who made that claim forgot the meaning of the word "investor". What's bad for productivity gains are weak executive decisions and too much capital in the hands of businesses which can't find uses for capital quickly enough. The entire community of investors, from advisors and fund managers to individuals, constantly monitors opportunities. Who better to make decisions about the allocation of capital? A badly run company doesn't favour the economy by hanging onto its profits (if it has any).
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No offense taken, Brad. If BCE wants to convert to a trust, or go into the daycare business, or maybe become a discount airline is up to the management, and they should bear the consequences of these decisions.
What I was trying to get at is by seeking short term tax advantages, they could hobble themselves and their company in the long term. The best way to allow companies and individuals to achieve their goals is to simplify the tax and regulatory structure so everyone has a level playing field and access to resources.
Just as a side note, the example of ENRON in the US is very illustrative. The corporation acted in a very unethical manner, and the market destroyed the company far in advance of anything the regulatory bodies or courts could do. What is telling is the regulatory structure is so complex that for a while is wasn't clear if ENRON had actually broken any laws at all. In effect, the management sought out "seams" in the legal and regulatory structure, and particularly places where codes overlapped or cancelled out, rather than just getting to work to create real value. It seems that many Canadian corporations were essentially steering into the same area, spending inordinate amounts of time and effort seeking loopholes and "tax efficiencies" rather than creating real value. That is the true long term danger of ideas like Income Trusts, rather than hypotheticals like how much revenue the Government would/would not have received.
What I was trying to get at is by seeking short term tax advantages, they could hobble themselves and their company in the long term. The best way to allow companies and individuals to achieve their goals is to simplify the tax and regulatory structure so everyone has a level playing field and access to resources.
Just as a side note, the example of ENRON in the US is very illustrative. The corporation acted in a very unethical manner, and the market destroyed the company far in advance of anything the regulatory bodies or courts could do. What is telling is the regulatory structure is so complex that for a while is wasn't clear if ENRON had actually broken any laws at all. In effect, the management sought out "seams" in the legal and regulatory structure, and particularly places where codes overlapped or cancelled out, rather than just getting to work to create real value. It seems that many Canadian corporations were essentially steering into the same area, spending inordinate amounts of time and effort seeking loopholes and "tax efficiencies" rather than creating real value. That is the true long term danger of ideas like Income Trusts, rather than hypotheticals like how much revenue the Government would/would not have received.
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I believe it was a good move politically.
The mainstream criticism of the Consrvatives is that they are too heavily influenced by corporations and value corporate interests more than Canada's. This is a large move away from that ground and places them back in PC territory.
Paradoxically, from what I have read in the editorials economically it was a needed move long term, it was economists and business leaders (corporations not able or willing to switch to Income trusts) that influenced them to finally tax trusts and lower corporate tax rates.
Individual freedom (investors) vs. Collective betterment.
The mainstream criticism of the Consrvatives is that they are too heavily influenced by corporations and value corporate interests more than Canada's. This is a large move away from that ground and places them back in PC territory.
Paradoxically, from what I have read in the editorials economically it was a needed move long term, it was economists and business leaders (corporations not able or willing to switch to Income trusts) that influenced them to finally tax trusts and lower corporate tax rates.
Individual freedom (investors) vs. Collective betterment.
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I think if was a decision forced on the government to stop a mass conversion on the part of companies to income trusts. It was a short-sighted political tactic in the election to promise not to step in but circumstances changed.
With the libs, they would have leaked it to their buddies, like they did before voting day. A tough call was made, and done in a professional matter that hopefully will give most people a chance to recover in the long term. With my own investments, a short-term loss is to be expected but I've been lucky to enjoy good growth over the long term.
With the libs, they would have leaked it to their buddies, like they did before voting day. A tough call was made, and done in a professional matter that hopefully will give most people a chance to recover in the long term. With my own investments, a short-term loss is to be expected but I've been lucky to enjoy good growth over the long term.
Brad Sallows
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>business leaders (corporations not able or willing to switch to Income trusts)
IOW, businesses used government to obtain a competitive advantage - almost no different from businesses which converted to income trusts to obtain a competitive advantage. The difference is that the former lobbied for their advantage and received it, and the latter have (at least since trusts were initially established) simply worked within the existing rules.
IOW, businesses used government to obtain a competitive advantage - almost no different from businesses which converted to income trusts to obtain a competitive advantage. The difference is that the former lobbied for their advantage and received it, and the latter have (at least since trusts were initially established) simply worked within the existing rules.
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