Income Trust A Challenge for Regulators

Author

John Lawford, Amanda Tait

Organization

Public Interest Advocacy Centre (PIAC)

Published

2007

Summary

In this report, PIAC seeks to explore some of the key issues in the fierce battle raging over the government’s decision to tax income trusts. Part I of the report will take a broad look at income trusts as a business model and will provide an overview of the income trust structure, including: the different types of income trusts, how they work, and the reasons behind why they have become such a popular investment vehicle. Part II of the report will explore the history of income trusts in Canada and examine the factors leading to the unprecedented growth of the trust sector in recent years. Part III will examine the history of government attempts at reforming the trust sector, and in particular, will highlight the current government’s proposed tax regime for trusts. Part IV of the report provides a brief overview of stakeholder reactions and the political and economic fallout from the government’s decision to tax trusts. Part V provides a detailed examination of the some of the most controversial issues surrounding income trusts, including: claims of serious tax leakages; the fear of mass conversions; the threat of foreign takeovers; economic inefficiencies; and the theory of market completeness. Part VI explains various contentious issues of regulatory law involving industries that have had a high degree of income trust conversion, such as energy and telecommunications, and whether and how economic effects of such conversions should be handled by the regulator. Part VII of the report looks at the issue of corporate governance of income trusts. It seeks to evaluate the claims of weak disclosure requirements, overvaluation of trust units, marketing and reporting discrepancies, the need for mandatory practice standards, and the lack of effective regulatory and oversight provisions for the trust industry as a whole. Part VIII examines the draft legislative amendments to the Income Tax Act proposed by the federal government. The section reviews criticisms launched by lawyers and tax experts that the proposed legislation lacks clarification on a number of the finer points of the new policy, including: the grandfathering clause; conversions to corporate status; ‘undue expansion’ provisions; the ‘anti-avoidance’ provisions; and the treatment of real estate investment trusts. Finally, in part IX, PIAC provides a number of important recommendations and policy considerations for government, industry and taxpayers.

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.

Contact information

Source: Consumer Policy Research Database