Trust rules tightened
matters,” the minister said. The move could amount to a freeze on income trusts, which have clearly become a matter of serious concern to the federal government. But a senior federal official denied that yesterday, saying companies can still go ahead with offerings if they want to do so without advance rulings.
“ We’re not going to pre- judge anything from now until December,” the official said. CI said this month that it was seeking an advance tax ruling from the Canada Revenue Agency. The company had hoped shareholders would be able to vote on the conversion in November. It is unclear whether the ruling affects CI’s plans. Bill Holland, CEO of the fund company, was not available for comment yesterday.
Earlier this month, in a much anticipated announcement, CanWest said it would spin off its Canadian newspapers into an income trust. A CanWest spokesperson was not available immediately for comment. And the Royal Bank of Canada, the country’s biggest lender, has said it may convert part of its business to an income trust. While a conversion hasn’t been actively considered, CEO Gordon Nixon has said, there are “ parts” of the banking business that might make sense to convert to a trust.
“ I think the government started to reconsider after the telecom companies and the banks started talking about income trusts — that’s a huge amount of revenue to lose,” said analyst Kona Shio of Montreal-based Conscius Capital Partners in an interview.
Shio said some companies that have been experiencing a boost in their stock prices from expectant investors who were banking on them to convert to an income trust may face some downside in the short term.
“ There is a lot of hot money out there chasing the next income trust conversion, so this will probably have some effect,” said Shio. Companies that stand to lose the most are those that do not have advance tax rulings — the first major regulatory step in getting income trust status, said Shio. The federal government said earlier this month that the market capitalization of trusts, limited partnerships and other flow- through entities shot up to $ 118 billion last year from $ 18 billion as of December 2000.