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Author Topic: Income trust and how companys avoid tax
Brian White
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posted 10 October 2006 01:08 AM      Profile for Brian White   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
I dont understand it but someone does!
Perhaps it would be informative for someone to explain it in this thread? Basically a whole bunch of companys are changing from corperations to income trusts. The change is cosmetic.
The advantage to the companys is that they can legally avoid tax. How do they do it and who will pay the difference?
Will it mean that personal taxes must rise enormously?
Will it mean the end of canadian surpluses?
Will rich people ever pay tax again?

From: Victoria Bc | Registered: Jan 2005  |  IP: Logged
HeywoodFloyd
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posted 10 October 2006 05:41 AM      Profile for HeywoodFloyd     Send New Private Message      Edit/Delete Post  Reply With Quote 
An income trust does not avoid tax. An income trust is a flow-through-entity which distributes 100% of all profits to unitholders immediately.

Because it does not have profits, there is base on which tax can be assessed.

In most countries, money generated for shareholders in a corporation is taxed twice. Once at the corporate level and once at the individual level. What an income trust does is shift all the tax burden to the unitholder.

What is important to remember is that the income trust is not a fixed-income source but an equity investment. With a downturn in the base business, no income from equity.


From: Edmonton: This place sucks | Registered: Jun 2003  |  IP: Logged
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posted 10 October 2006 07:48 AM      Profile for 2 ponies   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Wikipedia has a good article on income trusts.
http://en.wikipedia.org/wiki/Income_trust#Canada

Basically, income trusts are entities that hold income-producing assets. The income trusts don’t generate any profit because income is transferred out of the trust to unit-holders. The income is then taxed in the “hands” of the unit holders when they receive it, not before. People who own stocks and receive dividends are taxed twice; first the corporation is taxed, then a dividend is paid with after-tax income – the dividend is also taxed when the shareholder receives it. Income from a trust is taxed once. The income that the rich people earn from an income trust is taxable, but not until the rich people receive it. People who invest in income trusts aren’t avoiding taxes, but they are typically managing to pay less.


From: Sask | Registered: Nov 2005  |  IP: Logged
Lard Tunderin' Jeezus
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posted 10 October 2006 08:20 AM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Bullshit. A corporation is legally an entity with all the rights (and more) of a person - and theoretically, all the same responsibilities. But obviously not, because clearly once again, these legal entities have even more rights, and ever fewer responsibilities under the law.

If the assholes who are demanding the right to 'income trusts' are willing to take personal legal responsibility for the actions of these companies, then they should be able to reduce their tax loads. But we all know they won't; they simply want it both ways.

This is a loophole that should have been plugged several years ago. It still should be.

[ 10 October 2006: Message edited by: Lard Tunderin' Jeezus ]


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Gollygee
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posted 10 October 2006 09:05 AM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:
An income trust does not avoid tax. An income trust is a flow-through-entity which distributes 100% of all profits to unitholders immediately.

Because it does not have profits, there is base on which tax can be assessed.

In most countries, money generated for shareholders in a corporation is taxed twice. Once at the corporate level and once at the individual level. What an income trust does is shift all the tax burden to the unitholder.

What is important to remember is that the income trust is not a fixed-income source but an equity investment. With a downturn in the base business, no income from equity.


Good clear explanation. We lucked in at a good time and invested some 'ok' performing mutual funds into an income trust fund. The more money we make, the more taxes we pay. The income trust fund is more transparent than mutual funds (we don't feel as passive) but also doesn't have the little anoyances of owning shares. We use to have shares in a dozen companies but now just hold on to our Telus shares that have performed very well over the last decade.


From: Creston, BC | Registered: Sep 2006  |  IP: Logged
Frustrated Mess
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posted 10 October 2006 09:06 AM      Profile for Frustrated Mess   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
A corporation is legally an entity with all the rights (and more) of a person - and theoretically, all the same responsibilities. But obviously not, because clearly once again, these legal entities have even more rights, and ever fewer responsibilities under the law.

Corporations only have one primary responsibility under the law and that is maximizing profit for shareholders. For example, while citizens are obligated to sacrifice thier lives in defence of their country, corporations are not even required to sacrifice profit and, in fact, war time can be very profitable for corporations.

Imagine if, as a citizen, your only responsibility to the state was to get as much as you can out of it without being required to give anything back. That is the essence of being a corporation.


From: doom without the gloom | Registered: Feb 2005  |  IP: Logged
Gollygee
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posted 10 October 2006 09:20 AM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Frustrated Mess:

Corporations only have one primary responsibility under the law and that is maximizing profit for shareholders. For example, while citizens are obligated to sacrifice thier lives in defence of their country, corporations are not even required to sacrifice profit and, in fact, war time can be very profitable for corporations.


Sort of but not a complete picture. Corporations are owned by people and they have the obligation. I own a car...my car doesn't pay excise tax on gas, registration, insurance, etc...I do. If I buy or sell my car it is money in or out of MY pocket....not the car's. shareholders of corporations do indeeed have obligations in time of national emergency. In WW2 whole corporations were commandered and management told explicitly by the governmnet what they would produce (do a search on hurricane fighter planes in WW2).

Corporations are controlled by people. There is no actual 'corporate power' but the power of the people who control those corporations.


From: Creston, BC | Registered: Sep 2006  |  IP: Logged
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posted 10 October 2006 09:51 AM      Profile for 2 ponies   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
I understand the frustration and disdain many people have for corporations. There are a number of extremely large corporations that wield a great deal of power. What this really boils down to, in my opinion, is that there is an “elite” group of people who control a lot of wealth and resources and they tend to use corporations to wield the power of that wealth and those resources, while limiting their exposure to the responsibility they have to do things like….ensure operations adhere to good environmental stewardship or health and safety for workers. I would say, Frustrated Mess, that I mostly agree with you regarding your claim that the only responsibility a corporation has is to maximize shareholder profit. It is better described as a case of agents maximizing the wealth of principals when it comes to corporations; the agents are the managers and corporate officers, while the principals are the shareholders. The corporation itself is just an entity created by paper that assets, liabilities and equity are attached to; those assets, liabilities and equity, however, really belong to the principals (shareholders) of the corporation. Any how, I don’t want to knit-pick about details. Corporations aren’t the problem; the problem is how some people use the entity to get away with things. Co-ops, for example, are a type of corporation, charities are typically set-up as a non-profit corporation – good things are achieved with both types of corporations. The problem is the people at the helm of many corporations, not the entity itself.

I don’t think that most people, who invest in income trusts, are greedy and evil and trying to ruin the country by participating in tax evasion, getting as rich as possible and avoiding responsibility. I think there are a number of people who do evade taxes, whose only motive is greed and do take advantage of benefits derived from structures like income trusts because they think they’re entitled to something for nothing. There are a lot of people who think they’re on this earth to acquire as much as possible for themselves, without any need to consider how it negatively affects others. I would suspect that most people who invest in income trusts, however, are merely doing so at the advice of dime-store financial advisors at the branch of their local financial institution, or do so unknowingly through membership in a registered pension plan. I dispute the suggestion that people who invest in income trusts are all a$$holes; arguably, a lot of the tycoons who set these things up are a$$holes, but I doubt the regular person whose investment is limited to $5,000 to $50,000 in RRSPs or other plan is an a$$hole trying to skirt responsibility.


From: Sask | Registered: Nov 2005  |  IP: Logged
Citizen Wilson
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posted 10 October 2006 10:18 AM      Profile for Citizen Wilson        Edit/Delete Post  Reply With Quote 
Might be interesting to see how many Union Pension plans also invest in Income Trusts for the cash flow to fund pensions.
From: Regina | Registered: Sep 2006  |  IP: Logged
2 ponies
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posted 10 October 2006 10:19 AM      Profile for 2 ponies   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
I was hoping someone would bring that up....
From: Sask | Registered: Nov 2005  |  IP: Logged
Fidel
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posted 11 October 2006 11:15 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:
An income trust does not avoid tax.

Income trusts amount to legalized tax evasion.

[ 11 October 2006: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
M. Spector
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posted 11 October 2006 01:14 PM      Profile for M. Spector   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
I always thought the dividend tax credit was supposed to compensate for the "double taxation" of income derived from a corporation?
From: One millihelen: The amount of beauty required to launch one ship. | Registered: Feb 2005  |  IP: Logged
Gollygee
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posted 11 October 2006 01:21 PM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Citizen Wilson:
Might be interesting to see how many Union Pension plans also invest in Income Trusts for the cash flow to fund pensions.

True. The major Telus union also approved conversion to an Income Trust. Ovrall, unions are the largest block of shareholders of shares in Canada...overwhelmingly so in Quebec.


From: Creston, BC | Registered: Sep 2006  |  IP: Logged
Doug
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posted 11 October 2006 01:22 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
It's certainly going to become an issue soon:

quote:
Imagine the federal finance minister is strapped to an electric chair. Every income trust conversion raises the voltage. Last month, when Telus put its $22-billion trust plan into motion, the pain might have gone from the tolerable to the uncomfortable. Today, with the announcement of the copy-cat move by BCE, owner of Bell Canada, the pain must be close to intolerable. But will the feds do anything about it? Or are they masochists?

BCE's conversion will create a trust worth about $27-billion, Canada's largest. The trust will join about 250 others, collectively worth $200-billion, on the Toronto Stock Exchange. The vast majority pay no tax or almost no tax, which is why they became trusts in the first place. BCE would have paid $800-million in taxes in 2008 if it were to remain a company.

With Telus and BCE about to leave the federal and provincial tax rolls with no political consequences, other biggies will surely follow. The cable companies (or at least the ones that are, or soon will be, taxable) and the banks may be next. Why not the oil companies?

Here's a guess: It won't be long before shareholders launch lawsuits against the CEOs who refuse to convert their companies into trusts.... At stake is the $33-billion in taxes — that was the 2005 figure — paid each year by corporations.


http://www.theglobeandmail.com/servlet/story/RTGAM.20061011.wreguly1011/BNStory/Business


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
HeywoodFloyd
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posted 11 October 2006 03:11 PM      Profile for HeywoodFloyd     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Fidel:

Income trusts amount to legalized tax evasion.

[ 11 October 2006: Message edited by: Fidel ]


That's an oxymoron. Tax evasion is by its very definition illegal.

The term that describes this is Tax Avoidance, which is both legal and ethical.


From: Edmonton: This place sucks | Registered: Jun 2003  |  IP: Logged
Fidel
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posted 11 October 2006 03:43 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:

The term that describes this is Tax Avoidance, which is both legal and ethical.

The NDP doesn't think it's ethical or prudent to allow tax revenues to continue hemoraging. And the Liberals are indecisive on this and many other issues as usual.

Harper Faces Pressure to Close Trust Loophole

I think that with less than 24 percent of eligible voter support across Canada, Steve Harper an' his stetson-hatted gang in Ottawa are visual oxymorons for legitimacy.

[ 11 October 2006: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
VanLuke
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posted 11 October 2006 03:54 PM      Profile for VanLuke     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:
The term that describes this is Tax Avoidance, which is both legal and ethical.

I'd like to know what's ethical about not paying one's share in society, or even more so for one's mess?

For example, take the environmental damage Britannia Mines left behind. Why are taxpayers, who had no share in the profits, paying for the clean-up?

There are a gazzillion more examples of this kind not to mention "externalities", e.g. health care costs due to industrial pollution.

P.S. If, as some maintain here, the tax changes are neutral and the income is simply taxed in the hands of the shareholders did the share price of BCE rise in the month before the creation of the income trust? Shares in BCE Inc. rose from $27.50 on Sep 11, 2006 to about $ 33.- in one month ? That's ca. 20 percent.

http://www.cbc.ca/money/story/2006/10/11/bceincometrust.html

Are the buyers stupid?


From: Vancouver BC | Registered: Oct 2004  |  IP: Logged
HeywoodFloyd
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posted 11 October 2006 04:09 PM      Profile for HeywoodFloyd     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Fidel:

The NDP doesn't think it's ethical or prudent to allow tax revenues to continue hemoraging. And the Liberals are indecisive on this and many other issues as usual.

Harper Faces Pressure to Close Trust Loophole

I think that with less than 24 percent of eligible voter support across Canada, Steve Harper an' his stetson-hatted gang in Ottawa are visual oxymorons for legitimacy.

[ 11 October 2006: Message edited by: Fidel ]


Nothing to respond to here, as responding to any of these diversionary tactics would derail the thread in the way that only Fidel can.


From: Edmonton: This place sucks | Registered: Jun 2003  |  IP: Logged
timmah
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posted 11 October 2006 04:09 PM      Profile for timmah     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by VanLuke:
I'd like to know what's ethical about not paying one's share in society, or even more so for one's mess?

That's an interesting question, especially considering how "one's share in society" is completely subjective.


From: Alberta | Registered: Aug 2004  |  IP: Logged
HeywoodFloyd
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posted 11 October 2006 04:13 PM      Profile for HeywoodFloyd     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by VanLuke:

I'd like to know what's ethical about not paying one's share in society, or even more so for one's mess?

For example, take the environmental damage Britannia Mines left behind. Why are taxpayers, who had no share in the profits, paying for the clean-up?

There are a gazzillion more examples of this kind not to mention "externalities", e.g. health care costs due to industrial pollution.

P.S. If, as some maintain here, the tax changes are neutral and the income is simply taxed in the hands of the shareholders did the share price of BCE rise in the month before the creation of the income trust? Shares in BCE Inc. rose from $27.50 on Sep 11, 2006 to about $ 33.- in one month ? That's ca. 20 percent.

http://www.cbc.ca/money/story/2006/10/11/bceincometrust.html

Are the buyers stupid?


The bondholders are paying their fair share. The Income Trust is still required to obey all Canadian laws.

Good question about Britannia mines. I don't know enough about it to answer.

As to why the shares rise? Simple. Cash flow. Money in hand is better than potential money in hand.

Just watch what happens to the share price when the cashflow dries up.......thump. Then the bondholders are doubly screwed.


From: Edmonton: This place sucks | Registered: Jun 2003  |  IP: Logged
Fidel
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posted 11 October 2006 04:16 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by timmah:

That's an interesting question, especially considering how "one's share in society" is completely subjective.


If the rich want a cheap place to live and avoid paying Canadian taxes, why don't they move to Haiti or El Salvador ?. They're free range democratic capitalist nations.

Wasn't John Roth complaining about Canadian taxes and threatening to move offices to the U.S. just before sNortel shares took a big nose dive ?.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Fidel
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posted 11 October 2006 04:22 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
oops

[ 11 October 2006: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
HeywoodFloyd
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posted 11 October 2006 04:31 PM      Profile for HeywoodFloyd     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by VanLuke:
For example, take the environmental damage Britannia Mines left behind. Why are taxpayers, who had no share in the profits, paying for the clean-up?

http://www.agf.gov.bc.ca/clad/britannia/index.html

quote:
Province has provided indemnification for environmental liabilities to the successor companies of the mine operators, in exchange for $30,000,000. Using this money, the Crown Contaminated Sites Branch has taken on the task of remediation at the Britannia Mine site. The focus of the remediation program is the water treatment plant (WTP) to treat contaminated mine water.

Not just taxpayer money I guess.


From: Edmonton: This place sucks | Registered: Jun 2003  |  IP: Logged
Fidel
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posted 11 October 2006 04:36 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
It amounts to a taxpayer handout to rich people. The cost of the cleanup is over three times that amount.
From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
VanLuke
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posted 11 October 2006 06:58 PM      Profile for VanLuke     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by timmah:
how "one's share in society" is completely subjective.

It was claimed above that corporations have no share. I guess that is subjective.

Courts do not always agree with this but that involves the willingness of prosecutors to lay charges. (A rare phenomenon relative to corporate wrongdoing.)

Think tobacco law suits.

Or tell me why the huge pig farms in the south of the USA can just pollute the water supply of everybody else. It's their pigs' shit, isn't it? So what's subjective about this?

Or Britannia Mines?

Or......


From: Vancouver BC | Registered: Oct 2004  |  IP: Logged
VanLuke
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posted 11 October 2006 07:04 PM      Profile for VanLuke     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:
As to why the shares rise? Simple. Cash flow. Money in hand is better than potential money in hand.

Precisely.

Lower taxes (overall) mean higher cash flow. The bondholders have got absolutely nothing to do with this. It's not a shift of income from bondholders to shareholders. IIRC they plan to distribute 80 % of net revenue, i.e. after paying interest etc

quote:
Just watch what happens to the share price when the cashflow dries up.......thump.

That would happen regardless of income trust conversion or not.

[ 11 October 2006: Message edited by: VanLuke ]


From: Vancouver BC | Registered: Oct 2004  |  IP: Logged
VanLuke
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posted 11 October 2006 07:09 PM      Profile for VanLuke     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by HeywoodFloyd:
Not just taxpayer money I guess.

So?

Btw, this is a lot more complicated than just googling and coming up with a website where the government rationalises the spending of public money and the privatisation involved.

Thanks for the link but I read that page about a year ago.


From: Vancouver BC | Registered: Oct 2004  |  IP: Logged
DrConway
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posted 12 October 2006 12:17 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by M. Spector:
I always thought the dividend tax credit was supposed to compensate for the "double taxation" of income derived from a corporation?

And the capital gains inclusion percentage. Christ, these bastards just can't quit bitching and whining, can they.

You want double taxation? Try property tax. You pay THAT with dollars you take home AFTER the income tax is already taken off. I don't see people demanding property tax offsets on their income tax.


From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
timmah
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posted 12 October 2006 12:23 PM      Profile for timmah     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by VanLuke:

It was claimed above that corporations have no share. I guess that is subjective.

Courts do not always agree with this but that involves the willingness of prosecutors to lay charges. (A rare phenomenon relative to corporate wrongdoing.)

Think tobacco law suits.

Or tell me why the huge pig farms in the south of the USA can just pollute the water supply of everybody else. It's their pigs' shit, isn't it? So what's subjective about this?

Or Britannia Mines?

Or......


I don't agree with corporations being absolved of criminal/regulatory responsibility. However, my point was that, as a unit holder in an income trust (I'm not, but I could be), as long as I am paying the taxes required by law, I am paying my "share in society".


From: Alberta | Registered: Aug 2004  |  IP: Logged
Lard Tunderin' Jeezus
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posted 12 October 2006 12:31 PM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
That is entirely subjective, and it would seem you're not in the least bit objective. Can we afford the conversion of the entire TSX to income trusts, with the resultant loss of 3 billion dollars in government revenue?

This is a huge transfer of monies to the investor class, with the resulting loss of infrastructure and services shouldered primarily by the poor.


From: ... | Registered: Aug 2001  |  IP: Logged
DrConway
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posted 12 October 2006 12:39 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
You mean rich people should pay taxes? Heaven forbid.
From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
timmah
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posted 12 October 2006 12:49 PM      Profile for timmah     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Lard Tunderin' Jeezus:
That is entirely subjective, and it would seem you're not in the least bit objective.

I apologize for my opinion not living up to your standards. The entire concept of "my fair share" is subjective. How much is it? I'll bet my opinion differs from yours. The only benchmark (albeit arbitrary) is the tax law. If I operate within that, then I'm paying my fair share. If you disagree, then you are well within your subjective rights so to do.

quote:
Can we afford the conversion of the entire TSX to income trusts, with the resultant loss of 3 billion dollars in government revenue?

If only there was a way to recoup losses in revenue...

quote:
This is a huge transfer of monies to the investor class, with the resulting loss of infrastructure and services shouldered primarily by the poor.

Or a resultant tax hike, shouldered primarily by the wealthy. Or both.

In any case, it's reasonable for some to suggest that their money shouldn't be double-taxed. It's equally reasonable for you to assert that it should be. I respect your opinion, though I disagree.

[ 12 October 2006: Message edited by: timmah ]

(edited for formatting...which apparently I suck at)

[ 12 October 2006: Message edited by: timmah ]


From: Alberta | Registered: Aug 2004  |  IP: Logged
Lard Tunderin' Jeezus
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posted 12 October 2006 01:16 PM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Sleep well, timmah.
From: ... | Registered: Aug 2001  |  IP: Logged
Noise
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posted 12 October 2006 02:07 PM      Profile for Noise     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Income trusts amount to legalized tax evasion.

They reffer to it as tax deferral. I had it explained to me as instead of tax at a corporate level, the tax is deferred to a personal level. Personally I've got no clue what the explaination meant, but thats what I got.

It's an interesting headline to follow. I'll assume the reason of the post ultimately stems from BCE's recent conversion... Which is kinda strange to be honest, Telus did similar a while back and it barely made business news. The Bell mothership does it and suddenly it's headline news across canada.

It's a pretty slippery slope, now that Bell has done it, pretty close to every established company can do similar. I will say from a business perspective (keep in mind I'm seeing mostly just corporate propaganda that says this is a great thing) that there does seem to be alot of benefits in the way this allows the company to operate... A central trust fund with all the divisions underneath it. This will likely allow Bell (with other corps following... hehe, and bell following telus^^) to really improve the combinatin of services.


I'm curious (I'll re-read the thread for this reference)... Any ideas on whether or not the Canadian Gov't will introduce new legislation on this?

[ 12 October 2006: Message edited by: Noise ]


From: Protest is Patriotism | Registered: May 2006  |  IP: Logged
VanLuke
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posted 12 October 2006 03:10 PM      Profile for VanLuke     Send New Private Message      Edit/Delete Post  Reply With Quote 
timmah

quote:
. The only benchmark (albeit arbitrary) is the tax law

I couldn't have said it better, i.e. arbitrary does not equal fairness.

Furthermore, we were talking about a fair corporate share not your personal taxes.


From: Vancouver BC | Registered: Oct 2004  |  IP: Logged
Pearson
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posted 13 October 2006 08:34 AM      Profile for Pearson        Edit/Delete Post  Reply With Quote 
I have two questions:

When a company converts to a trust, is the money received by the unitholder counted as a capital gain or counted as income?

Also, if all the profits are given to the unitholders, so that no corporate tax is paid, how does the company re-invest any of those profits?


From: 905 Oasis | Registered: Jun 2006  |  IP: Logged
Grover
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posted 13 October 2006 08:52 AM      Profile for Grover     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
I have two questions:

When a company converts to a trust, is the money received by the unitholder counted as a capital gain or counted as income?

Also, if all the profits are given to the unitholders, so that no corporate tax is paid, how does the company re-invest any of those profits?


The money paid out in 'dividends' by the trust would be straight income. If a unitholder bought units at a lower price and sold them at a higher price the difference would be capital gains income. Does anyone know if income from a canadian income trust is considered a dividend with respect to the tax credit for dividends on canadian coporations?

A company wouldn't pay out its entire profits to through the income trust. Any money they wanted to keep in the company would need to be kept as retained earnings and taxed as such. Once the money goes to the income trust and out to the unit holders, it is gone from the company and could not be used in it.


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Fidel
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posted 13 October 2006 10:55 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
Ponzi schemes are illegal in many countries.
From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
timmah
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posted 13 October 2006 11:14 AM      Profile for timmah     Send New Private Message      Edit/Delete Post  Reply With Quote 
And in some countries, Ponzi schemes are referred to as "pension plans".
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Fidel
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posted 13 October 2006 11:40 AM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
But the North American economy is one big Ponzi scheme when viewed in broad daylight. Taxpayers in the U.S. spend over $2.5 trillion dollars every year so that corporate America can earn about $500 billion. The economy would come apart at the seams without hundreds of billions of dollars in taxpayer handouts doled to corporations annually. The stock market itself is a pyramid scheme requiring an expanding base of suckers(including pension funds) coming in at the bottom while a relative handful few spell off at the top. Social security is the most successful socialist program in U.S. history. And Canada Pension, after losing money for several years in a row with gambling on the stock market casino, is very popular among Canadians.

[ 13 October 2006: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
sock puppet
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posted 13 October 2006 12:19 PM      Profile for sock puppet   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Speaking of ponzi schemes, the recent Harper cut to the GST in no way made up for the decrease in non-taxable earnings and his half-percent hike to the lowest income tax rate.

So much for your concerns about a possible tax increase. Only the poor see tax hikes, and there's nothing but more gluttony for our filthy stinkin' rich.


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Doug
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posted 13 October 2006 05:53 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Pearson:
I have two questions:

When a company converts to a trust, is the money received by the unitholder counted as a capital gain or counted as income?


It's counted as income. The increase in value of trust units over time would be counted as a capital gain.

There's a couple of taxation implications of this move for people who own BCE shares (like me). The first is that when the company turns into a trust, for taxation purposes its as if you sold all of your shares and bought something else - so you incur any capital gain or loss at that point. Second, the cash distribution each year counts as regular income, not as a dividend, so the dividend tax credit doesn't apply.

quote:

Also, if all the profits are given to the unitholders, so that no corporate tax is paid, how does the company re-invest any of those profits?[/qb]

The trust sets a distribution percentage - in the former BCE's case, this is going to be 85%. So 85% of profit goes out the door to unitholders, and the rest can go to pay down debt or be reinvested.

[ 13 October 2006: Message edited by: Doug ]


From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged
the grey
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posted 13 October 2006 08:44 PM      Profile for the grey     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Doug:

There's a couple of taxation implications of this move for people who own BCE shares (like me). The first is that when the company turns into a trust, for taxation purposes its as if you sold all of your shares and bought something else - so you incur any capital gain or loss at that point.
[ 13 October 2006: Message edited by: Doug ]

An important point. The Globe notes that the conversion could result in an unexpected "windfall" for the government. www.theglobeandmail.com

[ 15 October 2006: Message edited by: the grey ]


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Gollygee
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posted 13 October 2006 10:13 PM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
True, but that capital gains is just 'all at once' instead of being incurred over time with the ebb and flow of selling shares. We have just over 700 Telus shares and with the increase in price in shares coupled with the probable tripling of dividend, we'll will still come out on top. A lot depends on income brackets. Those of us a bit older and winding down to retirement or with investments but income poor (thus stocks and property) increase in assets while coming out on the tax return around the poverty line. Income cn be a fuzzy indicator of the status of folks who are income poor but asset rich. It's not rare for folks to have a million in stocks, live on dividend income that is ok but not great and still be eligible for the GST rebate and other subsidies.
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DrConway
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posted 14 October 2006 05:18 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Tax rates vary across the country, but an investor in Ontario would pay about $7 in tax on a $30 capital gain.

From the newspaper article.

For your info, that's a 23% tax rate. After taking in income tax, EI and CPP, someone making $20,000 a year pays about 20% of their income in tax on every paycheck.

Just, y'know, for reference.

Not sayin' rich people are getting a real break on the cap gains or nuthin'.


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ouroboros
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posted 16 October 2006 08:30 AM      Profile for ouroboros     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Pearson:
I have two questions:
Also, if all the profits are given to the unitholders, so that no corporate tax is paid, how does the company re-invest any of those profits?

That was explained to me to be one of the downsides on making a company into an income-trust. It's possible to bleed the company dry and never re-invent in it.


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ouroboros
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posted 16 October 2006 08:35 AM      Profile for ouroboros     Send New Private Message      Edit/Delete Post  Reply With Quote 
When I first had the income trust explained to me I asked how is an income trust different then a co-op. The person explaining it to me wasn't the most left wing person and didn't know how co-op works.

So my question is, how is a income trust different then a co-op. Both are owned by people in the form of “shares”, both have the profits paid to the share holders, and I believe neither pay business taxes.


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Gollygee
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posted 16 October 2006 08:48 AM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by ouroboros:

That was explained to me to be one of the downsides on making a company into an income-trust. It's possible to bleed the company dry and never re-invent in it.


That's equally possible either way. Shares or units are bought and traded and that's a decision of investors. Corporations can increase dividends and thus chance decrease future worth. Some stocks are purchased for dividend income and some for captal growth. Most are in the middle somewhere.

Some companies (like Telus) are now in a position to attract large pools of investment from the Baby boomer generation that is wanting income from their investments now that employment income is winding down. That's exactly the demographics that we and many of our friends ae in.


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Lard Tunderin' Jeezus
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posted 16 October 2006 10:27 AM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
It's not rare for folks to have a million in stocks, live on dividend income that is ok but not great and still be eligible for the GST rebate and other subsidies.
You have a very, very strange idea of what 'rare' means. What percentage of Canadians do you imagine holds a million dollars in investments?

edited to make clear:

I mean liquid investments, such as stocks or bonds; not including the family home or farm.

[ 16 October 2006: Message edited by: Lard Tunderin' Jeezus ]


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Gollygee
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posted 16 October 2006 11:43 AM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Lard Tunderin' Jeezus:
You have a very, very strange idea of what 'rare' means. What percentage of Canadians do you imagine holds a million dollars in investments?

edited to make clear:

I mean liquid investments, such as stocks or bonds; not including the family home or farm.

[ 16 October 2006: Message edited by: Lard Tunderin' Jeezus ]


According to StatsCan it's 390,000. That's rare or not rare depending on one's definition. That is a very achievable figure for many Baby Boomers like ourselves who maxed out on RSPs over the last decades. One 'big black box' is what will happen to property values in the next 2 decades. Many boomers sit on properties worth a half million and more and how many will liquidate them for small less expensive condo units? Also, a lot of single family housing units are second properties owned by boomers and rented out. In places like Calgary and Edmonton, these have created instant millionaires inassets beyond primary rsidence. This is how my own father became a millionaire (in assets) in Vancouver in the early 1980's when his fourplex put him over the top. That for a guy who came to Canada in the 1960's and never earned more than labourer's wages.

Also, many boomers have elderly parents with high valued residential properties they either have or are about to inherit. How much is a modest house in Toronto or Vancouver worth? A half million? Six hundred thousand?

A millionaire just doesn't have the status it once did. Lots of people have lots of liquid assets they are have invested from low yielding mutual funds to volatile high risk stocks. as they retire an income trust with high dividend yield is an attractive alternative.


From: Creston, BC | Registered: Sep 2006  |  IP: Logged
the grey
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posted 16 October 2006 11:59 AM      Profile for the grey     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by ouroboros:
When I first had the income trust explained to me I asked how is an income trust different then a co-op. The person explaining it to me wasn't the most left wing person and didn't know how co-op works.

So my question is, how is a income trust different then a co-op. Both are owned by people in the form of “shares”, both have the profits paid to the share holders, and I believe neither pay business taxes.


Income trusts are based on limited partnership structures. The primary difference between an income trust and a co-op would be the level of involvement by the investors in the actual operation of the business.

Partnerships don't pay business taxes because they aren't themselves taxable - the partners themselves are taxed based on the profits of the partnership.


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jrootham
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posted 16 October 2006 12:23 PM      Profile for jrootham     Send New Private Message      Edit/Delete Post  Reply With Quote 
Here is the oppositions take on the thing.

There are several issues. The tax implications are significant. Certainly income trusts can be used to avoid taxes, and they can be a component of tax evasion as well (offshore holders with secret ownership).

Stock market stability is an issue of indeterminate significance. I suspect more for the headlines than the economic consequences.

Income trusts put even more pressure on getting good quarterly results. That's not good. On the other hand, the results need to show up in cash so it's harder to lie about them. That's good.

Probably on balance not really a good thing, mostly because of the tax implications.


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Fidel
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posted 16 October 2006 05:25 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Gollygee:
It's not rare for folks to have a million in stocks, live on dividend income that is ok but not great and still be eligible for the GST rebate and other subsidies.

It would be rare when considering half of Canadians don't earn $30 thousand a year. I doubt the number of true millionaires in Canada is more than two percent of the population.


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
DrConway
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posted 16 October 2006 06:31 PM      Profile for DrConway     Send New Private Message      Edit/Delete Post  Reply With Quote 
390 thousand over 30 million is 1.3 percent.
From: You shall not side with the great against the powerless. | Registered: May 2001  |  IP: Logged
Citizen Wilson
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posted 16 October 2006 06:37 PM      Profile for Citizen Wilson        Edit/Delete Post  Reply With Quote 
Two percent of the population...boy talk about a minority. What I'd really like to know is: what is the definition of rich?

I know some very left leaning folks sitting on a few million dollars, and they are always screaming about social injustice and the rich need to pay more. When I point out "but, aren't you rich?' they rapidly switch to "I meant folks who have more than me should pay more". Like really, what is rich and who are the multitudes of capitalistic pigs?


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Gollygee
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posted 16 October 2006 06:55 PM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
That's non primary residence and non-farm assets. A lot more are 'worth' a million when those are included. When residence is factored in I have a sister and a brother out of 3 siblings who jump into the category. Lots of boomers in major real estate markets have paid off their mortgages and are sitting on a tidy nest egg called a 'house'. Hundreds of thousands in the Toronto/Vancouver/Calgary markets are income average but millionaires in assets. I'd venture to say that just about every family on the street where we grew up is worth a million today but back then never had a new car let alone took a vacation that didn't involve a tent and a camp stove.
From: Creston, BC | Registered: Sep 2006  |  IP: Logged
Fidel
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posted 16 October 2006 07:28 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Citizen Wilson:
Like really, what is rich and who are the multitudes of capitalistic pigs?

That's a good question. According to this dated web piece, in 1999, there were six million people in the entire world with financial assets worth more than a million dollars. And check out Linda McQuaig's "wealth parade" describing inequality as it was in 1980's Canada. I think there are something like 2.8 million American's who can say they have a million dollars or more all the way up to filthy rich.

link

[ 16 October 2006: Message edited by: Fidel ]


From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Fidel
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posted 16 October 2006 09:19 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
Originally posted by Gollygee:
I'd venture to say that just about every family on the street where we grew up is worth a million today but back then never had a new car let alone took a vacation that didn't involve a tent and a camp stove.

Must be some neighborhood today. When my parents, both veterans of WWII, 1939-45, came back to live in Northern Ontario after the war, my mother from England said she'd never seen such poverty. There were ditches that over-flowed in rain storms, and shacks with no running water or sewers. My dad was one of the few guys around the neighborhood who could fix things and did a lot of helping people out. And they really needed it, my parents said. The poor family my father bought his shack from moved into a tent for the winter. Dad let them stay on the one acre property until they could scrounge enough money to get the hell out of Northern Ontario and drive to B.C. The old German guy said they had hard times in B.C. for a number of years before hitting a stretch of luck working for the feds. Our conservative PM in the 1930's said, "Money doesn't grow on trees", in reference to alleviating unemployment and poverty across Canada. War broke out. And then suddenly, money started growing on trees.


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Gollygee
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posted 16 October 2006 09:31 PM      Profile for Gollygee        Edit/Delete Post  Reply With Quote 
...and people went from poverty to being millionaires. Try buying a property today in West Vancouver. Tens of thousands of working class families in inner city neighborhoods in Canadian cities went from subsistance to being worth a million. They didn't exploit, rob or steal from anyone. They scraped together enough to put together a downpayment on a 15,000 house and maxed out each month to make the mortgage payment. Today the 15,000 wouldn't pay for renovating the kitchen in my parents 'one time' working class neighborhood.
From: Creston, BC | Registered: Sep 2006  |  IP: Logged
Fidel
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posted 16 October 2006 10:06 PM      Profile for Fidel     Send New Private Message      Edit/Delete Post  Reply With Quote 
I know. "Bubbles" seem to have become permanent features of North American economies. I lived and worked in Mountain View-SJ California for a while. I saw houses that were worth half a million to three-quarters that wouldn't fetch nearly as much money in Ottawa or Toronto. Most of the semi-new bungalows and older two-three story homes had no basements on postage stamp sized lots. Meanwhile, there are homeless Canadians living amid a sea of timber and natural wealth which could easily be utilized as building materials. A friend in Caracas tells me that if a person there can find a lot to build on, the government will deliver all the materials necessary to build a home, free.
From: Viva La Revolución | Registered: Apr 2004  |  IP: Logged
Lard Tunderin' Jeezus
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posted 17 October 2006 07:25 AM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Please do tell us where working-class family homes (the average home up until the 1950's was 1100 sq. ft.) are now worth a million?

Such homes aren't worth half of that in Toronto. I know, I live in one.

I'm also seriously dubious of your claim that 390,000 Canadians have a million or more invested in financial markets. I've wasted a half hour at StatsCan, and such a figure is nowhere to be seen.

[ 17 October 2006: Message edited by: Lard Tunderin' Jeezus ]


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Steppenwolf Allende
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posted 18 October 2006 09:36 PM      Profile for Steppenwolf Allende     Send New Private Message      Edit/Delete Post  Reply With Quote 
quote:
In most countries, money generated for shareholders in a corporation is taxed twice. Once at the corporate level and once at the individual level. What an income trust does is shift all the tax burden to the unitholder.

This is not correct, as far as I can tell. Most countries allow corporations to deduct dividend pay-outs to stock or unit holders, just like they do with wages and salaries.

According to the Council of Canadians and the CCPA, Canada is among the most generous (read idiotic) of the major economies in handing out tax gifts and dodges to corporate institutions for these matters.

quote:
A corporation is legally an entity with all the rights (and more) of a person - and theoretically, all the same responsibilities. But obviously not, because clearly once again, these legal entities have even more rights, and ever fewer responsibilities under the law.

This is essentially correct, and in Canada and the US, corporate “personhood” is actually more absolute in many ways than is actual individual personhood.

For example, corporate bosses are legally empowered, without seeking anyone’s consent, to create or dissolve new corporate bodies as subsidiaries, or buy and sell entire corporate bodies or stock in them, along with everyone employed in them, clients they service, etc. In effect, this is like buying and selling, creating or killing off people—something that most individuals (unless they are the elite that runs most big corporations) have been legally forbidden to do to one another.

This is part of the reason why corporate institutions get around the standard graduated tax system. They can hide income from both the government, shareholders and workers by investing it in secured trusts or holding accounts that belong directly to the corporation, not the stock holders. They can create a new corporate body that, at least on paper, does nothing but lose money in order to off-set revenues. They can also, as we see right now the ACE for example, use revenue streams and projections to artificially inflate stock prices, thereby actually lowering dividend pay-outs over time, while using the inflated net value to borrow more money, buy more assets and then use these expenditures, as well as the interest payments on the borrowed cash, as tax write-offs.

It’s no coincidence that capitalist corporations are structured like dictatorships, with a totalitarian top-down organization and a stifling restricted share-based, and multi-class and limit-availability share-based voting system designed to keep a tiny clique in control at all times.

As for income trusts themselves, I think the link that 2-ponies provides explains them fairly well. Whether these are good investments for most people is very subjective.

One thing that people really need to watch out for is what you plan to use the income trust revenue for. One thing that brokers conveniently don’t explain well is that while income trusts do guarantee a specific percentage return per year, they often end up giving you back part of your initial investment as part of that return if the fund under-performs the projections.

In other words, if the trust managers say an income trust will pay, say, eight per cent per year, since the ventures it invests in are expected pay out at least this much or more, and then fail to pay out enough money for the trust to honour the eight per cent commitment, the managers make up the difference by paying you back some of your initial investment.

That’s tolerable if you just use the money to re-invest in the fund or some other revenue stream. But if, like many seniors for example, you use that money to live on, what ends up happening is that you burn up your savings that you invested in the first place. SO you end up slowly getting poorer as time goes on. This is something to watch for very closely.


From: goes far, flies near, to the stars away from here | Registered: Aug 2006  |  IP: Logged
Lard Tunderin' Jeezus
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posted 22 October 2006 06:18 AM      Profile for Lard Tunderin' Jeezus   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
Five days later, I guess it's safe to assume Gollygee was pulling his 'facts' out of his ass.

Here's some real numbers.


From: ... | Registered: Aug 2001  |  IP: Logged

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