Cooking the Books

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.