Income Trust Talk

We could see it coming!  What better way to differentiate the Liberal platform from the Conservatives than to rub the Tory noses in their most hypocritical move since the last election. As we all recall, the Conservatives clearly stated that they would not touch the tax status of income trusts during the previous campaign. They then did an about face and effectively removed a favourite investment vehicle (and millions of dollars) from seniors and those investing for retirement.

This is one area where the Conservatives can’t suddenly, say “we can do that too”, because who would believe them!

That’s not to say that we can necessarily trust the Liberals to keep their promise either, but if they reversed course on this front-page headline announcement today, they stand to lose even more credibility than the Conservatives over this issue.

The Liberals actually first-floated the notion of reviving the income trust market in 2007, but it really takes an election campaign to remind us that they’re serious about this.

We also need to keep in mind that even if the Liberals do win this election (doubtful right now), this won’t mean a return to the glory days of income trusts. First, it’s an unproven assumption that this move will restore the millions lost by investors just after the October 2006 announcement to tax trusts, but the Liberals are claiming that perhaps 2/3 of the value that was lost. That would undoubtedly convince many voters to stop and think about which party they might be voting for.

The other vague area is whether this might open the door for new trusts.  For now the Liberals are talking about a moratorium on new trusts until such time as they decide which sectors might be allowed to create them. Keep in mind that real estate income trusts (REITS) are already exempt from new taxation. They could, for example, revisit energy trusts as an eligible sector, but it’s not clear whether we’d ever see the more generic class of business trusts available again.

Nonetheless, we applaud the Liberals for taking a decisive stance on this topic. If nothing else, it reminds us of the poorly thought out Flaherty Fiasco that robbed so many investors of their retirement funds.