

Currently released so far... 12646 / 251,287
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
2011/02/12
2011/02/13
2011/02/14
2011/02/15
2011/02/16
2011/02/17
2011/02/18
2011/02/19
2011/02/20
2011/02/21
2011/02/22
2011/02/23
2011/02/24
2011/02/25
2011/02/26
2011/02/27
2011/02/28
2011/03/01
2011/03/02
2011/03/03
2011/03/04
2011/03/05
2011/03/06
2011/03/07
2011/03/08
2011/03/09
2011/03/10
2011/03/11
2011/03/13
2011/03/14
2011/03/15
2011/03/16
2011/03/17
2011/03/18
2011/03/19
2011/03/20
2011/03/21
2011/03/22
2011/03/23
2011/03/24
2011/03/25
2011/03/26
2011/03/27
2011/03/28
2011/03/29
2011/03/30
2011/03/31
2011/04/01
2011/04/02
2011/04/03
2011/04/04
2011/04/05
2011/04/06
2011/04/07
2011/04/08
2011/04/09
2011/04/10
2011/04/11
2011/04/12
2011/04/13
2011/04/14
2011/04/15
2011/04/16
2011/04/17
2011/04/18
2011/04/19
2011/04/20
2011/04/21
2011/04/22
2011/04/23
2011/04/24
2011/04/25
2011/04/26
2011/04/27
2011/04/28
2011/04/29
2011/04/30
2011/05/01
2011/05/02
2011/05/03
2011/05/04
2011/05/05
2011/05/06
2011/05/07
2011/05/08
2011/05/09
2011/05/10
2011/05/11
2011/05/12
2011/05/13
2011/05/14
2011/05/15
2011/05/16
2011/05/17
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Apia
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Auckland
Consulate Amsterdam
Consulate Adana
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belmopan
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Ciudad Juarez
Consulate Chennai
Consulate Casablanca
Consulate Cape Town
Consulate Calgary
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dili
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Helsinki
Embassy Harare
Embassy Hanoi
Consulate Ho Chi Minh City
Consulate Hermosillo
Consulate Hamilton
Consulate Hamburg
Consulate Halifax
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kingston
Embassy Kigali
Embassy Khartoum
Embassy Kathmandu
Embassy Kampala
Embassy Kabul
Consulate Kolkata
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Ljubljana
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lahore
Consulate Lagos
Mission USOSCE
Mission USNATO
Mission UNESCO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Mbabane
Embassy Maputo
Embassy Manila
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Mumbai
Consulate Montreal
Consulate Monterrey
Consulate Milan
Consulate Melbourne
Embassy Nicosia
Embassy Niamey
Embassy New Delhi
Embassy Ndjamena
Embassy Nassau
Embassy Nairobi
Consulate Naples
Consulate Naha
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Of Spain
Embassy Port Louis
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Suva
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate St Petersburg
Consulate Shenyang
Consulate Shanghai
Consulate Sapporo
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
Consulate Toronto
Consulate Tijuana
USUN New York
USEU Brussels
US Office Almaty
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Embassy Vilnius
Embassy Vienna
Embassy Vatican
Embassy Valletta
Consulate Vladivostok
Consulate Vancouver
Browse by tag
AORC
AF
AU
ASEC
AMGT
AS
APER
AR
AEMR
AG
ARF
AJ
AA
AINF
APECO
AODE
ABLD
AMG
ATPDEA
AE
AMED
AGAO
AFIN
AL
ASUP
ASECKFRDCVISKIRFPHUMSMIGEG
AID
ASCH
AM
AORL
ASEAN
APEC
ADM
AFSI
AFSN
ADCO
ABUD
AN
AY
AIT
ACOA
ASIG
AADP
AGR
ANET
ADPM
AMCHAMS
ATRN
ALOW
ACS
APCS
AFFAIRS
ADANA
AECL
ACAO
AORG
AROC
AO
ACABQ
AGMT
AX
AMEX
AFGHANISTAN
AZ
AND
ARM
AQ
ATFN
AMBASSADOR
ACBAQ
AC
AUC
ASEX
AER
AVERY
AGRICULTURE
AFU
BR
BTIO
BY
BO
BA
BU
BL
BN
BM
BF
BEXP
BK
BG
BB
BTIU
BBSR
BRUSSELS
BD
BIDEN
BE
BH
BILAT
BC
BT
BP
BX
BMGT
BWC
CS
CA
CH
CD
CO
CE
CU
CVIS
CASC
CJAN
CI
CPAS
CMGT
CDG
CIC
CAC
CBW
CWC
COUNTER
CW
CT
CR
CY
CNARC
CACM
CG
CB
CM
CV
CIDA
CLINTON
CHR
COE
CIS
CDC
CONS
CF
CFED
CODEL
CBSA
CEUDA
COM
CARSON
COPUOS
CIA
CL
CN
CROS
CAPC
CTR
CACS
CONDOLEEZZA
CICTE
COUNTRY
CBE
CKGR
CVR
COUNTERTERRORISM
CITEL
CLEARANCE
CARICOM
CSW
CITT
CDB
CJUS
CTM
CAN
CLMT
CBC
EAID
ECON
EFIS
ETRD
EC
ENRG
EINV
EFIN
EAGR
ETTC
ECPS
EINT
EPET
ES
EIND
EAIR
EU
EUN
EG
ELAB
EWWT
EMIN
ECIN
ESA
ER
ETRDEINVECINPGOVCS
EAIG
ET
ETRO
ELTN
EI
EN
EUR
EK
EUMEM
ENIV
EPA
ENGR
EXTERNAL
EUREM
ELN
EUC
ENERG
EZ
ERD
EFTA
ETRC
ETRN
EINVECONSENVCSJA
EEPET
EUNCH
ENVR
ESENV
ENNP
ERNG
ENVI
ETRDECONWTOCS
ECINECONCS
EFINECONCS
EXIM
ELECTIONS
ECA
EINVEFIN
ETC
EAP
ECONOMY
EINN
ECONOMIC
EXBS
ECUN
ENGY
ECONOMICS
EIAR
EINDETRD
ECONEFIN
EURN
EDU
ETRDEINVTINTCS
ECIP
EFIM
EAIDS
EREL
EINVETC
ECONCS
ETRA
IC
IV
IAEA
IR
IT
IO
IN
IS
IZ
IMO
IPR
IWC
ICAO
ILO
ID
ICTY
ICJ
INMARSAT
INDO
IL
IMF
IRS
IQ
IA
ICRC
IDA
IAHRC
IBRD
ISLAMISTS
IDP
IGAD
ILC
ITRA
ICTR
ITU
IBET
ITF
INRA
INRO
INTELSAT
IEFIN
IRC
IRAQI
ITALY
ISRAELI
IIP
ITPGOV
ITALIAN
INTERNAL
INTERPOL
IEA
INRB
INR
IZPREL
IRAJ
IF
ITPHUM
ISRAEL
IACI
KBTR
KPAO
KOMC
KCRM
KDEM
KHIV
KBIO
KTIA
KMDR
KNNP
KSCA
KTIP
KWMN
KIPR
KCOR
KRVC
KFRD
KPAL
KWBG
KE
KTDB
KUNR
KSPR
KJUS
KGHG
KAWC
KCFE
KGCC
KOLY
KSUM
KACT
KISL
KTFN
KFLU
KSTH
KMPI
KHDP
KS
KHLS
KSEP
KMRS
KID
KN
KU
KAWK
KSAC
KCOM
KAID
KIRC
KWMNCS
KMCA
KNEI
KCRS
KPKO
KICC
KIRF
KPOA
KV
KDRG
KSEO
KVPR
KTER
KBCT
KFIN
KGIC
KCIP
KZ
KG
KWAC
KRAD
KPRP
KTEX
KNAR
KPLS
KPAK
KSTC
KFLO
KSCI
KIDE
KO
KOMS
KHSA
KSAF
KPWR
KVRP
KENV
KNSD
KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG
KCGC
KVIR
KFSC
KDDG
KPRV
KTBT
KWMM
KX
KMFO
KR
KMOC
KRIM
KCRCM
KBTS
KOCI
KGIT
KNUP
KPAONZ
KNUC
KNNPMNUC
KERG
KTLA
KCSY
KTRD
KNPP
KJUST
KCMR
KRCM
KCFC
KCHG
KREL
KFTFN
KLIG
KDEMAF
KPAI
KICA
KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG
KHUM
KREC
KSEC
KPIN
KESS
KDEV
KWWMN
KOM
KWNM
KRFD
KMIG
KRGY
KIFR
MARR
MOPS
MASS
MX
MNUC
MCAP
MO
MR
MEPP
MTCRE
MAPP
MEPN
MZ
MT
ML
MA
MY
MIL
MD
MASSMNUC
MU
MK
MTCR
MUCN
MAS
MEDIA
MAR
MC
MI
MQADHAFI
MPOS
MARAD
MG
MTRE
MASC
MW
MRCRE
MP
MOPPS
MTS
MLS
MILI
MEPI
MEETINGS
MERCOSUR
MCC
MIK
MAPS
MV
MILITARY
MDC
NATO
NZ
NL
NO
NK
NU
NPT
NI
NG
NEW
NSF
NA
NPG
NSG
NE
NSSP
NS
NDP
NSC
NAFTA
NH
NV
NP
NPA
NSFO
NT
NW
NASA
NORAD
NGO
NR
NATIONAL
NIPP
NZUS
NC
NRR
NAR
NATOPREL
OEXC
OTRA
OPRC
OVIP
OAS
OECD
OIIP
OSCE
OREP
OPIC
OFDP
OMIG
ODIP
OVP
OSCI
OIC
OIE
OPDC
ON
OCII
OPAD
OBSP
OFFICIALS
OPCW
OHUM
OES
OCS
OTR
OSAC
OFDA
PGOV
PREL
PM
PHUM
PTER
PINR
PINS
PREF
PARM
PL
PK
PU
PBTS
PBIO
PHSA
PE
PO
PROP
PA
PNAT
POL
PLN
POLITICAL
PARTIES
PCUL
PAK
PGGV
PAO
PSA
PGOVSMIGKCRMKWMNPHUMCVISKFRDCA
PAS
PGIV
PHUMPREL
PDOV
PHUMPGOV
PCI
PTBS
PEL
PG
POLITICS
POLICY
PINL
POGOV
POV
PRAM
PP
PREO
PAHO
PBT
PREFA
PSI
PAIGH
POSTS
PMIL
PALESTINIAN
PARMS
PROG
PTERE
PRGOV
PORG
PS
PGOF
PKFK
PSOE
PEPR
PPA
PINT
PMAR
PRELP
PINF
PNG
PFOR
PUNE
PGOVLO
PHUMBA
PSEPC
PNR
POLINT
PGOVE
PHALANAGE
PARTY
PDEM
PECON
PROV
PGOC
PY
PHUH
PF
PRL
PHUS
RU
RS
RO
RW
RP
RFE
REGION
REACTION
REPORT
RCMP
RM
RSO
ROBERT
RICE
RSP
RF
ROOD
RIGHTS
RIGHTSPOLMIL
RUPREL
RELATIONS
SENV
SU
SCUL
SOCI
SNAR
SL
SW
SMIG
SP
SY
SA
SHUM
SZ
SYRIA
SF
SR
SO
SPCE
SARS
SN
SC
SIPRS
SI
SYR
SEVN
SNARCS
SH
SAARC
STEINBERG
SG
SCRS
SENVKGHG
SAN
ST
SIPDIS
SNARIZ
SNARN
SSA
SK
SPCVIS
SOFA
SANC
SWE
SHI
SEN
TW
TU
TBIO
TSPL
TPHY
TRGY
TC
TT
TSPA
TINT
TERRORISM
TX
TR
TS
TN
TD
TH
TIP
TNGD
TI
TZ
TF
THPY
TP
TBID
TL
TV
TK
TO
TRSY
TURKEY
TFIN
TAGS
UN
UK
UNSC
UNGA
US
UNESCO
UP
UNHRC
UNAUS
USTR
UNDP
UNEP
UNMIK
UY
UNCHR
UNO
UG
UZ
UNPUOS
USEU
UNDC
UNICEF
UV
UNHCR
UNCND
UNCHC
UNCSD
USUN
USOAS
UNFCYP
USNC
UNIDROIT
USPS
USAID
UE
UNVIE
UAE
UNODC
UNCHS
UNFICYP
UNDESCO
UNC
Browse by classification
Community resources
courage is contagious
Viewing cable 06OTTAWA3333, Income Trust Tax Loophole Closed
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06OTTAWA3333.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
06OTTAWA3333 | 2006-11-05 13:50 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Ottawa |
VZCZCXRO9881
PP RUEHGA RUEHHA RUEHQU RUEHVC
DE RUEHOT #3333/01 3091350
ZNR UUUUU ZZH
P 051350Z NOV 06
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 4355
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 03 OTTAWA 003333
SIPDIS
WHA/CAN, EB/IFD/OMA, EB/IFD/OIA, EB/ESC/IEC
State please pass to USTR (Mary Sullivan)
USDOC FOR 4320/ITA/MAC/WH/ONIA (Walter Bastian, Geri Word)
Treasury for International Affairs (Jasper Hoek)
SENSITIVE SIPDIS
E.0. 12958: N/A
TAGS: EFIN EINV ETRD ECON CA
SUBJECT: Income Trust Tax Loophole Closed
Sensitive But Unclassified - protect accordingly.
¶1. (SBU) Summary: In a surprise move that sent Canada's financial
markets reeling, the Canadian federal government announced on
October 31 that it would start taxing income trusts as regular
corporations. The GOC took the action to stem lost revenue as more
Canadian companies threatened to restructure themselves as low tax
entity trusts. Ottawa will start taxing newly formed Trusts as
regular corporations as early as this year and existing trusts in
the 2011 tax year. Canadian financial markets responded November 1
with the Toronto Stock Exchange (TSX) losing nearly C$24.5 billion
in value from the trust sector; American investors hold about 20
percent (by value) of the Canadian income trusts. Reaction from the
opposition parties was split with the federal Liberals attacking the
Tory decision, and the Bloc Quebecois and NDP supporting it. The
Liberal finance ministers of Ontario and Quebec provinces also
supported the move. A growing consensus among political observers
is that the Tories may in fact gain political strength in the coming
months by having demonstrated tough leadership on this issue. End
Summary.
¶2. (U) Canada's Minister of Finance Jim Flaherty announced the
measures on October 31 to "restore balance and fairness to the
federal tax system by creating a level playing field between income
trusts and corporations". "Income trusts" - also known as
publicly-traded flow-through entities (FTEs) - avoid most corporate
taxes by distributing income to investors in monthly dividends and
were intended to provide a tax break for non-commercial and
portfolio investment trusts. However, FTEs had been increasingly
used by widely held and publicly-traded businesses to significantly
reduce their tax burden. Flaherty characterized the loss to federal
and provincial tax coffers as "not appropriate." (the Province of
Alberta estimated its net revenue loss due to income trusts to be
about $400 million per year).
¶3. (U) FTEs in Canada have grown dramatically in recent years and
now represent over C$200 billion in market capitalization. In 2006
alone, corporations representing almost C$70 billion in market
capitalization have either converted themselves into FTEs or
announced plans to do so, including telecommunication giants BCE
Inc. (based in Montreal) and Telus Corp (based in Vancouver). In
recent weeks, both companies had announced plans to become income
trusts, which would have driven up the market value of trusts on the
TSX by C$50 billion, resulting in an annual loss of C$800 million in
SIPDIS
tax revenue for the federal government.
¶4. (U) The GoC intends to introduce a new tax regime for FTEs later
this year under which their tax treatment will be more like that for
corporations, and their investors will be treated more like
shareholders. In its news release on the tax changes, the
Department of Finance claimed that Australia and the United States
have "foreclosed the kind of inappropriate avoidance of entity-level
tax that Canada's FTEs now exploit".
TSX Takes a Nose Dive
SIPDIS
---------------------
¶5. (U) In reaction to the federal government's announcement, the
Loonie fell eight-tenths of a cent against the U.S. dollar and the
TSX experienced significant losses in trading on Wednesday, November
SIPDIS
¶1. The TSX lost nearly C$24.5 billion in value from the trust
Q1. The TSX lost nearly C$24.5 billion in value from the trust
sector (and would-be trusts), and the S&P/TSX composite index fell
294 points (2.4 percent), the biggest single day loss in two and a
half years. The S&P/TSX Capped Income Trust Index fell more than 12
percent, the most since at least 1998. No trusts on the 73-member
index rose on November 2. The S&P/TSX composite index, however,
closed up 80.34 points (0.7 percent) to 12,130.73 on November 2.
Winners and Losers
------------------
¶6. (SBU) Among the losers, CI Financial Income Fund dropped 20
percent; Yellow Pages Income Fund fell 19 percent, and would-be
trusts BCE and Telus lost 11 percent and 14 percent, respectively.
BCE, Canada's largest communications company, experienced its
biggest drop since 1983, when the company was formed. Though Bay
Street was taken by surprise by the announcement, and industry
insiders say that they were not consulted during the policy-making
process, the consensus is that something needed to be done,
especially in light of BCE's recent announcement that it would be
converting itself into an income trust (see also para 12).
OTTAWA 00003333 002 OF 003
¶7. (U) Observers in Calgary, the hotbed of the oil and gas sector,
suggest the new tax regime may lead to consolidation in the industry
or greater foreign ownership of Canadaian natural resource entities,
either through direct take-overs of trusts weakened by the new tax,
or through their inability to acquire assets on their own. CEO Bill
Andrew of Calgary-based Penn West Energy said that he expects fewer
corporate offices in Calgary, with less Canadian ownership in the
oil patch in general; another Calgary firm compared the announcement
to putting up a "for sale" sign on Canadian energy resources. The
Former CEO of Canadian energy giant EnCana, however, in a November 2
op-ed piece for the Globe and Mail said the decision required "tons
of courage" by the Government and that "in the long term, Ottawa is
right to move on income trusts".
¶8. (U) On Thursday, November 2, as the bleeding continued in the
income trust sector, investors moved back into dividend-paying
financial shares, led by Manulife Financial, up C$2.10 to C$38.40,
after its better-than-expected results released the same day.
Following closely behind Manulife were the Canadian banks, four of
which marked 52-week highs, led by Royal Bank of Canada, which rose
C$3.10 to C$51.60. But there is concern among industry analysts
that the demise of income trusts as they exist today could
ultimately affect the earnings at Canada's big banks by as much as
4.5 percent this fiscal year, and damage growth in the mutual fund
industry, which has been buoyed by income trusts.
American Investors Also Hit
---------------------------
¶9. (SBU) It is estimated that about 25 percent of investments (by
value) in Canadian income trusts are held by international
investors, of which 20 percent are U.S. investors. Canadian and
international investors receive different tax treatments, based upon
international treaties in place. For example, U.S. unitholders are
subject to a 15 percent withholding tax on the distributions paid by
income trusts. U.S. unitholders may elect to claim the 15 percent
Canadian withholding tax on distributions paid during 2005 as a
deduction against income, or subject to certain restrictions, as a
credit against their U.S. tax liability. In any case, the tax
benefit to U.S. investors will diminish with the change in tax
treatment of income trusts. Analysts blame the tax advantages
enjoyed by non-resident and tax-exempt investors in trusts as the
driving force behind corporate conversions to income trusts.
Political Ramifications
-----------------------
¶10. (U) The Liberals in Parliament hit hard at the Tories in
Question Period on November 1 declaring the tax decision "a breach
of trust." Liberal Finance critic John McCallum described the
November 1 market fallout as "this day of infamy, this Black
Wednesday." Canadian newspapers carried stories about how
individual investors lost tens of thousands of dollars and who vowed
to never vote Conservative again. On the other hand, it appears
that many significant actors are in fact pleased with the federal
government actions. In the halls of Parliament, both the NDP and
Bloc Quebecois have said they will support the government's tax
proposal. On the provincial front, the Liberal Finance Ministers of
Ontario and Quebec were quick to praise the Tory decision.
QOntario and Quebec were quick to praise the Tory decision.
¶11. (U) Regarding the "breach of trust" accusation, the Tories
counter that their election promise not to alter the income trust
tax regime had been intended to assure small investors, such as
retirees, that they would be protected from a bigger tax bite. The
Tories claim that there was no commitment to avoid taxing large
corporate entities such as BCE and Telus, which had recently
announced their restructuring to income trusts. To back these
claims, Minister Flaherty introduced pension-splitting measures on
October 31 to offset the new, higher, income trust tax rates for
retirees.
¶12. (SBU) Some observers claim this GOC action demonstrates that the
Tories possess a "Main Street" rather than a "Bay Street" mentality.
However, several high-profile corporate chieftains had quietly
approached the PM and Finance Minister in recent weeks to signal
misgivings about the increased rate of corporate moves into income
trusts. Sam Boutziouvis, the Vice President for Policy with The
Canadian Council of Chief Executives, a business advocacy and policy
group whose membership includes the CEOs of Canada's leading
corporations (similar to the Business Roundtable in the U.S.) told
the Embassy that over the past months they, too, have heard concern
OTTAWA 00003333 003 OF 003
from their members about pressure to consider trust conversion. He
also noted that the absence of comment from the corporate sector
against the tax changes is an indicator that Corporate Canada is not
going on the warpath against the Tories. Indeed, Don Drummond, a
former Finance Ministry senior official and now Senior Vice
President and Chief Economist for the TD Bank Financial Group
commented, regarding the Tory action that, "on balance, it's
clever".
¶13. (U) Comment: Given that the pain of the change is being felt by
a relative few, and the decision is coming well before an election
(anticipated for late spring/early summer 2007) and by which time
the market will have likely bounced back, the Tories may in fact
gain political strength by having demonstrated hard headed
leadership. End Comment.
¶14. This cable was produced jointly by Embassy Ottawa, CG Toronto
and CG Calgary.