by Gordon Pape
Two lawyers at Stikeman Elliott produce what may be the best analysis yet of the income trusts debate.
Simon Romano and John Lorito of the prestigious law firm of Stikeman Elliott have written one of the best analyses of the income trusts situation that I have seen to date. It appears in the October issue of the companys Securities Law Update and takes the position that the best possible course the federal government could take with the trusts is to retain the status quo.
In their article, the authors argue that income trusts, far from being a drag on economic growth in Canada, have taken us to a whole new level. They write: We should all think back five or six years. Editorialists and others were bemoaning the hollowing out of corporate Canada, our hot young companies were choosing to go public in the U.S. and bypass Canada altogether, and our capital markets seemed to be atrophying. The rise of income trusts, delivering a higher yielding and relatively stable product that Canadian investors wanted. . . saved our capital markets.
Rather than stagnating, the robustness of our capital markets over the last several years has become the envy of the world, creating jobs and giving small and mid-sized companies more access to capital than any of us would have ever thought possible. Robust capital markets also have spin-off effects economically, which have been evident over the past few years.
Looking at the various alternatives that the Finance Department could apply to reduce or eliminate what it says is a $300 million tax drain (which the authors feel may be overstated), they conclude that none are both politically and financial palatable. Their conclusion: the best course is to do nothing. Leaving things alone is a very viable option, and probably on balance the best. The Canadian tax system has many levers and many means of raising revenue, and the overall benefits of income trusts to Canadian investors, Canadian pension plans, small and mid-sized businesses and their employees, and our capital markets, seem to vastly outweigh any minimal tax leakage.
In the meantime, they call on Ottawa to make the consultation process as short as possible and take immediate steps to reduce the uncertainty. You can read the entire document at