Conservatives nixing income trusts

Canadian Finance Minister Jim Flaherty said on Tuesday the government will begin taxing income trust distributions and will cut corporate taxes to level the playing field between trusts and corporations.

Income trusts, which avoid most corporate taxes and pay the bulk of cash flow directly to investors, have surged in popularity in recent years as investors have embraced their rich yields. However, economists have noted the structure robs the government of hundreds of millions of dollar's worth of tax revenues.

I know of at least one conservative who is really going to be upset about this, and has already predicted a bloodbath on Wednesday. I suspect more than a few people are going to be peeved.

Flaherty also predicted that the Telus and BCE conversions to income trusts would not go ahead given the changes he announced.

But I think that in the long room this is probably the right move, even if there is short term pain. A level playing field should always be the government's goal.