Travis Johnson

PDS: Tax-Free Ride Ends for Canadian Trusts

Bill -- thanks for your informed comment. In the big picture, I absolutely agree that these Trusts were a mess that the government clearly had to clean up in some way before all corporations opted to convert ... but I understood that the campaign promise by the current government was that they would leave the trusts alone, especially after the liberal dithering over trust taxation last year really brought the conservatives to power. I know it's silly to rely on campaign promises, and I suppose the Telus and BCE news really put the fear into them that a change had to come immediately.

I think it's probably the right thing to do (for Canada, if not for me) to change the trust rules significantly, especially because of the tremendous advantage they give (gave) to foreign investors. But as one who is much more accustomed to following US politicians, I'm really shocked that they were willing to take the heat for this and make such a dramatic change that seems to be unpopular. I would have guessed that they would have done something much less dramatic, and that they would have waited for a few years -- until the oil-driven budget surplus disappeared, to give them political cover -- to do anything about it.

I think it's probably the right thing to do, but I'm quite surprised that they did it -- and that the change is as severe as they're proposing. It's really unfortunate that they didn't do something about trust taxation three years ago, before they became so widespread and popular.

In regards to PDS, I'm still of two minds -- that four years really is throwing me off and I'm not sure how to value the impact, though with roughly a 30% cut to the dividend expected (just from taxation, regardless of any corporate decisions) it appears that the market is discounting half of that decline immediately and may slowly account for the rest over the remaining time. The potential business strength of PDS is the wild card, of course, and that really depends on the price of natural gas price over the next several years -- which might as well be the rosetta stone for all the ability I have to decode it.

Thanks,
Travis