Comments on: Canadian Income Trusts: The Last Round is Up!

By: Intelligent Speculator | Financial Ramblings

Intelligent Speculator | Financial Ramblings — Fri, 12 Feb 2010 11:12:36 +0000

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By: youngandthrifty

youngandthrifty — Fri, 12 Feb 2010 06:59:08 +0000

Lol.. Draguflaherty! =) I guess at least he redeemed himself somewhat and offered us the TFSA!

I have bought some income trusts for my TFSA this year to milk the distributions before they convert.. so thanks for the tips on alternatives!

By: IntelligentSpeculator

IntelligentSpeculator — Thu, 11 Feb 2010 20:11:17 +0000

@1stmilliondollar.net – There are a few ways to do it yes. You can of course buy the specific preferred shares that you like, as if they were regular stocks. And yes you are right, it is surprising that there are not more alternatives to pref shares ETF’s.

By: The Financial Blogger

The Financial Blogger — Thu, 11 Feb 2010 17:38:53 +0000

@ Dr Mike,

I should have explain myself in another way. Let me rephrase this:
For a normal company, dividend are paid to shareholder after they have paid taxes on on their income. As for income trust, they were able to pay dividend to shareholder (that are taxable in the hand of shareholders) without having to pay their tax first.

Therefore, there was a huge tax loss for the Government since they were getting tax only from the shareholder and not from both (as it is the case for a normal corporation).

By: The Rat

The Rat — Thu, 11 Feb 2010 17:06:29 +0000

Awesome thread! There’s not enough posts out there regarding income trusts.

Regarding REITs, it may be a safe haven for tax purposes come 2011, but be careful – some REITs will not be exempt. For example I have shares in both Riocan and Extendicare but from what I can gather, Extendicare will not be exempt because of the type of activities they do. I have other investments in REITs and other trusts, and the investor surely has to be careful this year as to what holdings they have and whether they want to offload of anything. At the same time, where there’s risk, there’s opportunity, so you never know what direction things can go. By compnanies converting to corporations, the dividends received will also be more favorably taxed in comparison to interest income in a lot of cases as well.
Cheers

By: 1stmilliondollar.net

1stmilliondollar.net — Thu, 11 Feb 2010 15:33:01 +0000

How do we access preferred shares? Is it via ETF? Currently, there is only one Canadian ETF for preferred shares (as far as I know), i.e. Claymore’s CPD; but it’s dividend is about 5% -> not much difference to the big Canadian banks.

By: Ron

Ron — Thu, 11 Feb 2010 13:37:35 +0000

You should do some reseach before you open your ignorant trap on income trusts,Start with PricewaterhouseCoopers,BMO and HLB.
We pay tax at the personal rate on distributions.
Income trusts were bringing in a gusher of tax on business.
Income trusts threatened to democratize industry which hitherto had been subject to the rapacities of the top floor and a sycophantic board of directors happy to get their stipend and glad hand old friends.
Lobbying was intense as could be seen on ROBtv every day leading up to Halloween2006
By the way you sound like an idiot and if thats your picture you look like an idiot.

By: Dr Mike Popovich

Dr Mike Popovich — Thu, 11 Feb 2010 13:09:44 +0000

A couple of comments.

” The major difference since its creation is that income trusts were able to distribute their dividends tax free and were getting taxed only on the money remaining after the dividend distribution.”

These were not dividends , they were considered interest income in the hands of the owners , which were the trust unit holders. We payed taxes on all distributed money at the interest tax rate –there was no dividend tax credit & as such our rate of taxation far exceeded the average corporate tax rate of 6.2% (form the Rev Canada web site)–as such there was no tax loss to the gov`t but there was a net tax positive.

“The Canadian Government decided to put a stop to this madness as more and more companies were converting into income trusts taking away billions of dollars of tax revenue from the Government.”

As I said above , the net result from trust taxes was a net positive when all interest payed into RRSP & other pension accounts was taken into account–the finance department failed to factor this into their calculations assuming that registered accounts were tax exempt when they are tax deferred (from the Rev Canada web site)—the gov`t s claim was a 400-500 million tax loss , not billions.

This tax was lobbied-for by CEOs attempting to protect their stock options & to boost their access to capital.

Dr Mike Popovich—Rodney , Ont