U.S. private equity firms are keenly interested in income trusts as targets, says Jamie Scarlett in The Globe and Mail

December 11, 2006

Income funds are now destined to become an endangered species, says University of Toronto professor Dr. Jack Mintz, the tax expert who may have helped spur the government to crack down on income trusts by predicting that conversions to the structure would cost more than C$1 billion in lost revenue.

Jamie Scarlett, along with one of Canada's largest trust investors Sandy McIntyre, will join Dr. Mintz in Toronto to discuss "The Future of Income Trusts: To Be or Not To Be."

The general consensus now and in Dr. Mintz's view is that the likely outcome for most trusts is not to be. A Deloitte & Touche poll last week found that trust executives and advisers expect trusts to start disappearing before the end of the government's four-year tax holiday. They have not yet begun because Ottawa has not set out the rules for conversions back to corporations.

Dr. Mintz said that his call for a refundable dividend tax credit would create more incentive to convert: it would make dividend-paying stocks more attractive and allow investors to exchange units for shares without triggering a capital gains tax hit.

The other likely outcome for many trusts is to be acquired by U.S. and other foreign private equity firms. Their interest has been huge, says Jamie: "There's going to be a lot of U.S. money coming in."

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