Canadian tax proposal hits chem trusts hard

01 November 2006 16:45  [Source: ICIS news]

TORONTO (ICIS news)--Stocks of Canadian chemical firms organised as income trusts were hit hard on Wednesday by a federal government proposal to start taxing all such trusts.

Chemtrade Logistics, a Toronto-based industrial chemicals firm, was down 23.85% to Can$7.95/unit in early Wednesday morning trading on the Toronto Stock Exchange. Superior Plus, which owns pulp chemicals maker Erco, was down 15.77% to Can$11.00.

Canexus, the chemicals spin-off of energy firm Nexen, was down 14.52% to Can$6.71. And Interpipeline fund, an important ethane supplier in Alberta, was down 16.1% to Can$8.39. 

Finance Minister Jim Flaherty announced on Tuesday a tax on the distributions of income trusts. Until now the trusts have paid little or no tax as they pay out most of their cash flows in distributions to unit holders on a tax-free basis.

Flaherty noted a wave of conversions of corporations into income trust in Canada, which he termed a trend towards corporate tax avoidance. He added: “The current situation is not right and is not fair.”

Newly formed income trusts would be taxed from 2007 onwards. Existing income trusts will be taxed from 2011.

Analysts said if Flaherty had not acted Ottawa could forgo over Can$1bn ($885m/€694m) in lost tax revenues.

George Vasic, chief economist with UBS in Toronto, said in a media briefing he expects the measure to become law, although Prime Minister Stephen Harper's Conservatives only have a minority government in Parliament. 

Income trusts are listed on the Toronto Stock Exchange and included in the exchange's composite index. The index was down 238 points to 12,108 early Wednesday morning

By: Stefan Baumgarten
+1 713 525 2653

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