As a result of the new tax income trusts cannot survive on a equal footing with other corporate structures, and are being forced to change to more tax efficient structures resulting in a huge loss of tax revenue to the government. Estimates vary although all are in the billion dollar range, not a single credible source estimates this new tax will result in an increase in tax revenue.
As of October 31 2006 the $200 billion trust market paid $16 billion in annual distributions on which the government collects $6 billion in taxes. In addition as trusts, Telus (1) and BCE would have paid $1.5 billion more than as private equity LBOs. Therefore the trust tax will potentially result in a loss of $7.5 billion a year in taxes. Since more companies had plans to convert this is probably a conservative estimate.
According to this slightly dated fact sheet from CAIF income trusts pay out billions of dollars in taxable income to Canadian investors each year resulting in large revenue streams to Federal and Provincial treasuries. RBC estimates over $5 billion is collected in tax on yearly trust cash distributions of $16 billion, not including potential capital gains taxes on fund conversions. The lost revenue from the Bell and other future buyouts would have to be added to this figure.
(1) Telus has not yet been taken over, but it and other deals are rumored to be in the works. The sub prime mortgage crisis in the States has slowed things down, expect the LBO market to resume at full speed once the crisis blows over.
LBO= Leveraged buy out, This is what happen to Bell, Telus as of 9 Sept 2006 has not been brought out although it is a prime candidate.
RBC= Royal Bank Canada Dominion Securities