Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (42815)	11/24/2005 5:37:06 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69996

Dividend tax change planned Ottawa moves to stem flow of money to income trusts Big corporations could become more attractive to investors Nov. 24, 2005. 01:00 AM STUART LAIDLAW AND MADHAVI ACHARYA-TOM YEW IN TORONTO With an election looming, federal Finance Minister Ralph Goodale shocked Parliament Hill yesterday by announcing another $300 million in tax cuts — this time for dividend income — as a way to stem the flow of money into income trusts. The surprise move upends a review Goodale called into the tax treatment of the popular investment vehicle just two months ago. That review was to run until the end of the year, with Goodale saying last week a new policy would be ready by January. The impact of the move could be sweeping, as large corporations of all descriptions stand to benefit because their stocks could now be seen as more attractive investments, while dampening the demand for income trust units. Goodale told a press conference late yesterday he would have preferred if the consultation process could have run its course until the end of the year. But it became clear the opposition parties intended to defeat the government. "This removes the uncertainty and volatility of this becoming a bit of a football in an election campaign," he said. In making the announcement, Goodale's department said the overwhelming consensus of submissions it received on the issue called for a cut to personal income tax on dividends. "It makes the conversion from a company to a trust less attractive," Leslie Lundquist, manager of the Bissett Income Trust fund, said in a telephone interview from Calgary. "If this goes all the way, it would level the playing field so there's really no tax benefit to investors in a trust." The tax cut would apply to dividends received after the end of the 2005 calendar year, Goodale said. Conservative finance critic Monte Solberg said the Liberals are sowing uncertainty by introducing last-minute measures before an election. "They are desperately trying to fix what they have messed up" before the election campaign, he added. Faced with a rush of companies converting to trusts in recent years, Goodale launched a review in September. By some estimates, Ottawa is missing out on about $300 million in tax revenues a year because of income trusts and limited partnerships. The federal government also stopped providing advanced rulings on the tax treatment of proposed income trusts at that time, but said yesterday such reviews would now resume. Trusts have proved popular with investors looking for steady income, and have swollen to a $170 billion industry in the past four years. Because they pay less in taxes, income trusts are able to pay out more money to unitholders. Corporations pay corporate taxes before dividends are paid to their shareholders, who must then pay taxes on the dividend income, minus an adjustment made for taxes already paid at the corporate level. Yesterday's announcement would cut the taxes paid on dividends by raising that adjustment. Jamie Golombek, vice-president of tax and estate planning for AIM Trimark Investments, said he could not comment on the potential impact on stock prices. But he said that "owning dividend-paying stocks or mutual funds will certainly be more attractive given the enhanced dividend tax credit that was announced." If provinces match the enhanced credit proposed by Ottawa, the effect would be to reduce the top tax rate on dividends from an average across Canada of about 32.35 per cent to 20.5 per cent, versus about 46 per cent on interest income. Royal Bank of Canada's current 2.68 per cent dividend would then pay high-income earners as much income after taxes as an interest rate of 3.97 per cent, up from 3.38 per cent today. Thorold, Ont. senior Carole Jamieson, who met with Goodale just hours before his announcement, was thrilled to hear that changes were on the way. She presented Goodale with a letter explaining income trusts are important to seniors as a source of steady income. Income trusts pay out $16 billion a year to more than one million Canadians. Investor concern surrounding the federal review has knocked about 15 per cent off their value. Goodale's move addresses one of the recommendations of Canada's largest bank on the issue. In its submission to Ottawa's aborted review of income trusts, Royal Bank of Canada called for Ottawa to make deeper cuts in corporate taxes, and to refrain from boosting taxes on trusts. The bank declined to comment yesterday. In a separate submission released yesterday, the Canadian Chamber of Commerce also called for a cut in both dividend and corporate taxes. Such cuts would push companies to consider more than tax savings when contemplating conversion to a trust, the chamber said. RBC recommended a four-point plan: cut taxes on dividends, cut corporate taxes, look for ways to cuts costs so government can afford more tax cuts, and refrain from raising the taxes on income trusts or limiting investments in trusts. Accountability Research Corp., an affiliate of Rosen and Associates forensic accountants, said in a report released yesterday that the purported tax advantages of income trusts have been overstated, and warned that less than two-thirds of their cash distributions are actual income. The rest is a return of investors' own capital. with star wire services