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Income trusts hearings inundated
Gary Park For Petroleum News
A showdown over the Canadian government’s reversal of its pledge not to tax income trusts looms, with about 200 groups and individuals applying to make their case to a House of Commons finance committee hearing.
However, only a small number — not likely to exceed two dozen — will be chosen by committee members to make a formal presentation.
But that won’t deter interest groups from continuing their public campaign, especially the Coalition of Canadian Energy Trusts, which insists it merits a special exemption.
In the meantime, the government received a solid vote of approval from David Dodge, Governor of the Bank of Canada (Canada’s equivalent of the Federal Reserve), who said there should have been action “years ago” to close the trust tax loophole.
“The right thing is to have a tax system with low rates and a broad base and as neutral as possible,” he told the finance committee. “And probably years ago we should have recognized that we had a bias (relating to trusts) that could lead to problems.”
Dodge said income trusts are suitable for companies that simply have to manage existing assets, but not for firms that require innovation and new investment.
He said companies were converting to trusts to reap tax benefits and not with any concern for business efficiency, thus reducing their potential for productivity growth.
Trust status imperils general tax cuts Finance Minister Jim Flaherty said that a failure to end the tax-favored status of trusts would imperil tax cuts planned for the general public because it would have “reduced my fiscal room to move.” The government has previously estimated it is losing at least C$500 million a year by allowing companies to restructure as trusts.
The energy trust coalition has again hammered home its argument that trusts in the oil and gas sector generate more federal tax revenue than the same companies would have under the traditional corporate structure.
Coalition co-chairman Gordon Kerr said the trust structure is an efficient way to exploit aging, depleting oil and gas wells in Western Canada by putting the focus on “maximizing recovery from mature asset pools.”
“We want the government to take the time and do the calculations to get this decision right,” he said.
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