Did the finance Dept. cook the books to exaggerate the tax leakage caused by trusts. In at least one case the answer is yes. The department didn't include the US trusts. Since almost all taxes paid by the US trust unit holders are gains, the tax leakage is overstated.
The US trusts paid little or no Canadian taxes prior to conversion. Most of them were based solely in the US and paid no9 Canadian taxes. The conversion to a trust didn't result in any tax loss for the Canadian government.
These trusts had very few if any Canadian investors, and therefore generated little tax revenue for the Canadian government from individuals. This changed with the conversion to trusts. The number of Canadian investors increased dramatically, and so did the Canadian taxes paid.
I doubt very much that this extra revenue would reduce the $500 million that the government claims it is losing to zero. looking to the future this extra revenue could certainly reduce the tax loss, if any, to zero, in fact it could easily produce a tax gain. The high cost of Sorbanes-Oxley compliance in the US has made it very difficult for smaller US companies to go public. The TSX reporting rules are much less costly to implement . Add to that the trust premium on unit price, going public as a Canadian trust was a very attractive option for private US companies. The proposed conversion of Bell and Telus would have legitimized the trust sector in the eyes of many investors who were not already investing in trusts. It would also have encouraged the directors and executives f US firms, both public and private, to look into the possibility of becoming trusts. The increased demand for trusts that would have resulted from the Bell and Telus conversions would have been met in part by the conversion of many US companies to Canadian trusts. Since the US is so much bigger than Canada the supply of companies for potential conversion to trusts could offset the tax losses, if any, that resulted from Canadian conversions.
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I own a few trusts, bought them early January. It has been a slow 5 months in the patch since the IT announcements but in the past 2 weeks a lot has been rumoured out here about equity firms and bigger oil/gas entities snatching up the 'Deals' in trust companies. Would you encourage investors too look at trusts at this time for upward movement in the short term (6 mos.) or get out now while the getting is average? There's a lot of cash sitting on the side lines right now waiting for a home. In the past I have noticed about a 30-45 day lag from talk in the patch to effect in the market. I have experienced way too much talk turn to walk in the patch which is why I have rolled my rrsp portfolio into a self directed one.
What's your take on oil and gas stocks in general?
On Monday I got news that one of my trusts, KCP, recieved a takeover offer. The trust jumped almost 25%. Today I sold KCP and bought Strongco. The reason I bought this trust is because it has recently cut it's distribution from 18 cents a month to 10 cents. This cut was primarily the result of the slowdown in the oil patch. Stronco (SQP.UN) was just under nine dollars this morning and will pay me $1.20 in the next year if the distribution remains the same. That's over 13% while you are waiting. Since I, along with many others think that there will be a lot of takeovers, that is one I am waiting for.
The other thing I think could happen might be shown by my last purchase, Peyto Energy Trust (symbol PEY.UN.) This is 100% gas weighted trust, with properies in Alberta. They have an excellent website, the last time I looked. The Toronto Stock exchange has links to most companies websites. Get a quote for the company you're interested in then click on company information. For those few companies that have no website you can get their statuary filings at SEDAR. I'm giving you this information because if you are going to run your own portfolio, it is your responsibility to do your homework. Everybody makes a bad investment, once in a while. Some make bad investments quite often.
The most imortant thing to remember as an investor is to diverify. Don't put to much money into one sector or company. International investing brings additional risks, especially for individual investors, so I have very little exposure to foreign securities. I have around eighty individual stocks and two ETFs. You don't have to have that many, but I keep finding stocks I like. I bought XGD last year because I thought gold prices were going up.
However I didn't feel that I knew enough to make a good decission on which were the best companies. This ETF let me invest in al the larger companies in the gold sector.
Just a quick overview of the general philosophy that is behind most of my investments: I'm a contrarian. That means when everyone is selling something it is a signal that I should take a look and see if I should buy. If everybody is buying something that I own, it may be time to sell. I bought oil trusts in '98 when everybody was selling theirs to buy tech and dot com stocks. It has been very profitable. Most peole think about what a stock will do in the next six months to a year. I look at what is going to happen in three to five years. Warren Buffet is a champion of long term investing, maybe he knows something.
Good luck and great profits.
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