Canadian Oil Trusts

[One_more_turn]

Since the government changed the tax laws, they have been literally massacred. So my questions for the Canadian experts here:

Has any of you invested in those oil trusts?

How much is the government going to tax the dividend?

What are your general opinions about these trusts?

Are there any troubles from the past (such as over-stated reserve numbers and other Enron-like transgressions)?


Flubber, your comment is especially appreciated.

Thanks.

[Flubber]

Re: Canadian Oil Trusts

Originally posted by One_more_turn


Has any of you invested in those oil trusts?

Not I specifically but some of my funds held some trusts. It was almost impossible not to given they were pretty common

Originally posted by One_more_turn


How much is the government going to tax the dividend?

Dividends or distributions taxation is not where the big change comes. These trusts could pay ZERO tax on an profit which was paid out to the unitholders and all tax was paid in the hands of the recipient. This allowed low income earners or non-residents to pay very little tax so the canadian government netted less tax.

Trusts will now be taxed like other corporations such that they will pay tax on their profits. This means that they will have less money to distribute to unitholders so payouts will be less. Ironically if these payouts are taxed like corporate dividends, the recipient will probably pay LESS tax on a % basis but overall the government will collect more tax.

Bottom line is that it seems these corps will be treated like any corporation

Originally posted by One_more_turn


What are your general opinions about these trusts?




.

I think the government had to make the changes they did. The trusts were such an effective vehicle to reduce overall tax paid that ALL types of businesses were headed that way. Apparently the breaking point was when some chartered banks began investigating converting to trusts.

Bottom line is if the structure didn't change, Canada would not have had any significant "corporations" in as little as 5 years . . . The tax advantages were that significant. The loss to the taxpayer would be large.

Originally posted by One_more_turn


Are there any troubles from the past (such as over-stated reserve numbers and other Enron-like transgressions)?

Not that I am aware of .(but I haven't looked back for it) Numbers often get restated over time, but it seems like for most of the majors, they end up adjusting upward as often as downward. generally it seems that you need pretty good evidence to add barrells to your proven and everyone takes "probable" numbers as just that. . . . I think the majors are so freaking huge that they know that any advantage from overstating reserves would be overshadowed by their loss of credibility when the truth comes out

Originally posted by One_more_turn



Flubber, your comment is especially appreciated.

I don't know that I have any real special knowledge. Plus I haven't seen or read any of the specific terms of the changes. So far all I know are the general policy announcements around this. As always, the devil will be in the details

[notyoueither]

Re: Canadian Oil Trusts

Originally posted by One_more_turn
Has any of you invested in those oil trusts?

Not I.

How much is the government going to tax the dividend?

The same as any other corporation.

What are your general opinions about these trusts?

I wonder why they existed to start with. Why should you get limted liability without taxes on the entity?

[Nubclear]

Since the government changed the tax laws, they have been literally massacred.

Literally!?

[Flubber]

Originally posted by Tassi

Since the government changed the tax laws, they have been literally massacred.

Literally!?

and even more confusing is that I think he meant the trusts were "massacred" not the government. THe trusts lost a lot of value in the aftermath of the announcement. The government took some hits but I think survived it very well

[One_more_turn]

"Massacre" is probably a gross overstatement. But a total of $30 Billion dollars was lost in the aftermath, resulting in lots of angry investors.

Anyway, thanks for your replies.

[Peter Triggs]

Q: Has any of you invested in those oil trusts?

A: Yes. I'm an old retired guy and these have been a nice little earner for years.

Q: How much is the government going to tax the dividend?

A: According to Wiki:

Income trusts, other than real estate income trusts, that are formed [from now on] will be taxed in the same way as corporations:

income flowed out to investors will be subject to a new 34% tax as of 2007 (which falls to 31.5% in 2011)[11], which approximates the average corporate income tax paid by corporations -- this is equivalent to the current prohibition against deducting dividends paid to investors in determining corporate taxable income; and
income flowed out to investors will be eligible for the dividend tax credit to provide equal treated to dividends paid by corporations.
Income trusts formed on or before that date will not be subject to the new rules until 2011 to allow a period of transition. Real estate income trusts will not be subject to the new rules. The new rules are contrary to the Conservative party's election promise to avoid taxing income trusts.[12]

Flaherty proposes to reduce the federal corporate income tax rate from 19% to 18.5% in 2011. The 34% tax on distributions will be split between the federal and provincial governments -- the federal government will consult with the provincial governments on an appropriate mechanism for allocating 13 percentage points of the new tax between the provincial governments.

I didn't know about that extra new tax money going to the provinces. This won't affect existing trusts for another 4 years anyway.


Q: What are your general opinions about these trusts?

A: I liquidated my holdings of income trusts (both energy and business trusts) the morning of Nov 1. Since then I've been buying back in because, since the new taxes aren't going to kick in for another 4 years, the short term yield (i.e. holding them for 2 to 3 years) on some of these trusts is just too good to resist. I've never had a problem with losing money - in the long run - on the stock market. But, remember, as they say 'Your milage may vary'.