Canada proposes minor changes to income trust law

Thu Dec 20, 2007 8:01pm EST
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OTTAWA (Reuters) - Canada proposed some minor tweaks on Thursday to its controversial legislation to tax income trusts, responding to input from the public with changes that are not expected to affect government revenue.

The amendments are designed to ensure that the new rules do not unduly punish entities that were not targeted by the government's policy change.

The changes provide more flexibility to allow a greater number of business structures to not be considered income trusts for tax purposes.

Income trusts are structured to pay little or no corporate tax, allowing investors to pass on much of their free cash to unitholders in the form of distributions.

In October 2006, Finance Minister Jim Flaherty announced that Ottawa would begin taxing trust distributions in 2011, breaking a Conservative Party election promise not to touch the investment vehicles.

Existing income trusts are exempt from the new tax until 2011 as long as they do not expand in excess of specific guidelines set out by Ottawa.

A key change proposed is the removal of the distinction between Canadian and foreign properties in determining whether a trust qualifies as a "real estate investment trust," or


Also, Flaherty said he wants to ensure that existing income trusts can convert to corporations without undue tax consequences on the conversion.   Continued...