Categories
Taxation

Income trust foreign takeovers may be a good thing

There’s been a lot of activity lately on the income trust front. Foreign firms are making bids left and right to acquire the Canadian entities, in the wake of the 31.5% trust tax introduced by the Conservative government.

Jack Mintz, a professor at Rotman, the business school at the University of Toronto, discusses in a recent Globe and Mail article that trust takeovers are not always a bad thing:

Trusts were shielded from takeovers prior to the federal trust tax announcement because their relatively high market values made purchases more prohibitive. It allowed managers to avoid the threat of takeover and therefore encouraged inefficiency.

Makes sense to me. I’ve come around to the idea that trusts were not all they were cracked up to be. That the trust tax is a good thing. Maybe not for investors who plowed most of their assets into units instead of shares or bonds, but it didn’t make sense that a business could choose to structure itself in a way such that it would pay no tax while other entities would.

Prof. Mintz says trusts could end up being run more efficiently and productively by new management.

“When you are operating as an income trust and have the high valuations at that point – and the very high distributions – it made it difficult for someone to come in and do a takeover based on such a very high valuation,” Mr. Mintz said.

Canada has been lagging in productivity for years compared to our neighbours to the south. This could help close the gap, but it could also result in a dramatic increase in foreign ownership, which could potentially lower tax revenues for the government which set in motion this chain of events in an effort to strengthen the tax base!

What do you think? Could trust takeovers be a good thing for our productivity? Will the increased productivity make up for the potential lost tax revenues?

Categories
Taxation

Abolish the property tax rant

Not mine, but that of historian John Steele Gordon (via Tax Foundation):

In the 18th century, real property was probably the best measure available of a person’s ability to pay taxes. That’s because it generated income from farming or things like water mills, ship yards and stores. Only the very rich had residences on town lots.

But in today’s suburban world, property is a terrible measure of a family’s ability to pay taxes. Almost all privately-owned property today is income-absorbing. And it’s also grossly unfair.

The result is that the middle class family pays a much higher proportion of its annual income in local taxes than does the zillionaire across town.

Also, property taxes are highly visible as they arrive in the mail at least twice yearly. Visibility alone is a good thing when it comes to tax because it allows those who pay it to be more aware of it, but in this case is outweighed by the fact that we’re also being reminded of how arbitrary the tax can seem most of the time.

Another negative is that property tax is unrelated to behaviour, as it depends most often on macro factors outside the taxpayer’s control.