Income Trusts and â€œHollowing Outâ€
In Thursdayâ€™s Financial Post, the Canadian Association of Income Funds articulated the argument suggested by Elizabeth May: the devaluation of income trusts has made them vulnerable to takeovers by foreign private-equity.
Certainly, many enterprises that paid little tax as income trusts will continue to pay little tax by converting to new organizational forms, such as private equity or publicly-traded corporations. However, this fact does not indicate that the crackdown on income trusts was wrongheaded, but rather that additional business-tax loopholes also need to be closed.
The contention that income trusts entailed no “tax leakage” is, essentially, an argument that other types of businesses pay little tax anyway. Progressives should follow this ongoing debate, which may publicly air some of corporate Canadaâ€™s dirty laundry as well as interesting information about the business-tax system.
Income trust investors accepted the tax liability and paid taxes on the distributions. If income trusts get bought out by foreign private equity utilizing leveraged debt, no taxes will go to CRA.