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Goodmans Publications

Acquiring Canadian Income Trusts

November-8-2006

Area Corporate Finance and Securities, Tax, REITs and Income Securities, Private Equity

Summary


On November 7, 2006, Canada’s Parliament approved the Canadian government’s plans to start taxing most publicly traded income trusts starting in 2011 (REITs will generally be exempt, as will income from a trust’s U.S. or other foreign subsidiaries that do not carry on business in Canada). This will generally eliminate the favourable tax treatment of income trusts in Canada relative to corporations.

The announcement had predictable capital market consequences – the Toronto Stock Exchange’s income trust index lost 16.3% of its value in two days of trading. Some issuers were down significantly more than that. Although prices have rebounded somewhat since, analysts expect a permanent correction to income trust valuations. This may provide an opportunity for private equity and other buyers to acquire income trust issuers or their underlying businesses at attractive prices.

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