Rush to the gates

4 April 2007 By Lauren Silva

A recent change to tax laws, designed to end income trusts, has opened the gates to the barbarians. Talk of a buyout of C$26bn BCE roiled the market last week. LBOs wouldn t be bad for shareholders, but is that what Ottawa intended?

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Shares of Canadian income trusts, or companies that are structured to avoid corporate taxes by distributing cash to investors before taxes are paid, have fallen since the government last year said that there would be a change to the income trust tax policy.

The Ottawa government said the distribution payments that income trusts make to unit holders would become taxable starting this year for trusts were publiclytraded before October 2006. It would apply beginning 2011 those that were already publiclytraded.

"While these decisions offer corporations shortterm tax benefits, they are creating an economic distortion that is threatening Canada's longterm economic growth and shifting any future tax burden onto hardworking individuals and families," Minister of Finance Jim Flaherty said. "If left unchecked, these corporate decisions would result in billions of dollars in less revenue for the federal government to invest in the priorities of Canadians, including more personal income tax relief. These decisions would also mean less revenue for the provinces and territories."

Last week, various reports said that KKR was in talks to buy Bell Canada. Bell Canada later issued a release to confirm the fact that there are no ongoing discussions being held with any private equity investor. BCE further said the company has no current intention to pursue such discussions.

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