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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Canadian energy trusts face end of the power line
New laws close tax loopholes, prompting trusts to become corporations |
By Ashley P. Lau, MarketWatch
SAN FRANCISCO (MarketWatch) — Canadian energy trusts are stampeding to convert themselves into corporations ahead of an expected Jan. 1 change in the country’s tax code that will strip away tax advantages they have long enjoyed.
Seven energy trusts announced they were making the switch in October alone.
“The age of Canadian energy trusts is rapidly drawing to a close,” said investment analyst Harry Domash, who has been tracking the conversions. “It’s been picking up pace in the last few weeks; it seems like a couple a week are coming out now.”
The popularity of tax-friendly trust structures, which have long operated under century-old Canadian laws, hit its peak in 2006 when a wave of major corporations converted into trusts to take advantage of the federal tax benefits. That year, Canada’s Department of Finance cited almost $70 billion in assets flowed into newly-formed trusts.
Faced with a growing loss of tax revenue, the government put in place tax amendments aimed at leveling the playing field between trusts and corporations, setting in motion a migration of trusts crossing over to the corporate side.
The changes might also hold a hidden benefit, attracting investors more familiar with the way corporations are structured and taxed than the slightly more exotic trusts.
Many of the converting trusts waited until this fall to cross over in order to build up their tax pools and prolong their tax benefits under the current law.
“We wanted to take advantage of the tax structure of trusts up until the changes go into effect,” said Glen Nelson, investor relations manager at Provident Energy.
Provident Energy (CA:PVE.UN 7.96, +0.09, +1.14%) , which announced its conversion on Oct. 6, said its $900 million in combined tax pools will allow the company to offset material cash taxes until 2014.
“If the taxation law changes were not going into effect, you would not see us converting into a corporation,” Nelson said.
The ‘Halloween Surprise’ of 2006
Under current law, royalty trusts can skirt high corporate income taxes if they distribute their income to unit holders. The energy sector in particular benefited from the breaks because the law encouraged investment in oil and gas exploration.
But when major corporations began converting into trusts to avoid paying income taxes, the Canadian government decided to change the rules. See MarketWatch's Canada page.
“It really hit the fan when the telephone company Bell announced it would convert from a corporation into a trust,” Domash said.
On Oct. 31, 2006, Finance Minister James Flaherty introduced what came to be known as the “Halloween Surprise,” which involved a four-fold plan to address what he called an “unbalanced tax treatment.”
The Canadian government’s new plan calls for a reduction in corporate taxes and a new distribution tax that will apply to income trusts. Under the new plan, certain distributions of a trust’s income will no longer be deductible but subject instead to corporate income tax rates.
For the complete article visit MarketWatch
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Income Security Recommendation January 2013 Issue.
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