ICAC Urges Investors to Consult Advisors Before Acting on Income Trust Tax Changes

(November 1, 2006) — The Investment Counsel Association of Canada, representing Canada’s professional investment counsellors, is urging individual investors to consult with their advisors before reacting to significant changes in the tax treatment of Canadian income trusts announced yesterday by the federal government.

On Tuesday evening, Canada’s Minister of Finance, Jim Flaherty, announced a Tax Fairness Plan proposal that will introduce a distribution tax on Flow Through Entities (FTEs) and a tax on distribution receipts similar to dividends.  These new rules will become effective in 2007 for organizations that legally convert into trusts after October 31, 2006, and in 2011 for existing trusts.

Don Cranston, ICAC’s Chairman commented, “First and foremost, we recommend that individuals should not make any quick decisions, but rather consult with their investment counselors, portfolio managers or financial advisors to determine the implications the changes may have on their personal or business investment strategy.”

Mr. Cranston also said, “We expect a reaction in the markets today, but since it is effectively status quo in terms of tax treatment for four years for existing trusts, this allows Canadian investors transition time to react to the news and re-evaluate the impact on their investment strategy.”

Katie Walmsley, President of the Investment Counsel Association further commented, “We were aware that this issue had been on the Federal Government’s radar screen for some time, but clearly the announcement came as a shock to many.  Given the complexity of the Canadian corporate and individual tax system, it will take some time to analyze and react to the economic implications of a change that impacts a layer of taxation.”

In addition, Finance Minster Jim Flaherty announced an allowance of income splitting among pensioners beginning in 2007.  Retired couples can now split Canada and Quebec pension payments, but can’t split other income such as retirement funds and company pensions.  Reflecting on this announcement, Katie Walmsley, ICAC President added, “This change will provide some tax relief to retired seniors, which is a positive development and should encourage retirement savings.  We highly recommend individual investors take the time to talk to their financial advisors so that they clearly understand the personal investment implications of both these changes.”

About ICAC

The Investment Counsel Association of Canada (ICAC) is the representative organization for investment counsel and portfolio managers in Canada.  ICAC was established in 1952 and its current members are responsible for managing in excess of over $500 billion of client assets.  Member firms are only in the business of managing investments for clients in keeping with each client’s needs, objectives and risk tolerances.

For more information contact:

Katie Walmsley,
Investment Counsel Association of Canada
Toronto, Ontario