Income trust round up

Apparently BCE forced the government's hand , and did so with its eyes open. They felt they had no option, though, with the Telus decision to convert, so here we are. Andrew Coyne says it's good policy, but bad politics:

It's got to be some sort of trick -- some cunning Conservative dodge, some deeply Roveian sleight of hand, in which what looks to the untrained eye like political suicide is revealed in the end to have been a political master stroke. Consider: At one blow, by suddenly reversing course and imposing a tax on income trusts, the Conservatives have infuriated old age pensioners, seriously put out Bay Street and destroyed $25-billion in wealth. Oh, and flat-out broken an explicit campaign promise from the last election -- just in time for the next. Confound your devilry, Jim Flaherty! It's so stupid, it's brilliant!

And Terance Corcoran argues that most Canadians will come around and see that this is the right thing to do. Hopefully the income splitting provisions for seniors will be a precursor to having income splitting for the rest of us.

Flaherty acted to end what sensible people knew was a growing problem: You cannot build and maintain a national corporation-based economic system on a tax mistake that had the effect of wrecking the underlying corporate structure. A standard corporation paid income tax at 46% on profits, directly as a corporation and indirectly through shareholders. Converted to an income trust, the corporate tax became almost zero when paid into a pension fund or RRSP. Foreign investors paid 15%...The Flaherty fix puts an end to the tax gimmick. No gimmick, no trusts. All businesses will now pay the same corporate tax rates, regardless of their structure.

I agree that this is ugly.

It breaks a very, very clear promise.

It's politically very damaging.

It's temporarily destroyed billions in wealth.

But at the end of the day, it is the right move in long term. If they had left it as is, it would have only got worse and been a more painful problem for a future government and all investors. Now the playing field is level, and they can move on personal and corporate rates.

Maybe they could have handled it better (how? -ed). But it's better than the last time something on trusts was announced, and over time hopefully most investors can forgive them. And it is done now, so I guess we just have to deal with it.

Update: here's the insider tale from CTV