Estate Planning

A Day in the Life of an Income Trust Deconverter

By Hull & Hull LLP

Regardless of the wisdom of the federal government's fateful decision to tax income trusts, its impact on the trust sector has been profound.  Retail investors, corporate managers, lawyers and accountants, government tax departments: all are affected by this policy decision.  Trust lawyers, for instance, have certainly seen a vast potential pool of future work relating to the conversion to and operation of income trusts disappear.  

On the bright side, there will be a great deal of work relating to the restructuring (re-converting? de-converting? re-incorporating?) from income trusts back to business corporations.  This seems to be a trend, since the tax exemption that makes operating as an income trust more tax-efficient than a traditional corporation disappears in 2011.  A contemporary example is CI Financial Income Fund, which announced plans last month to return to a tradional corporate business structure (it converted to an income trust in 2006).  Other recent examples of de-conversions are Newalta Income Fund, which converted to a trust in 2003 and BFI Canada Ltd., listed on the TSX on Oct. 2, 2008, formerly BFI Canada Income Fund.

CI Financial also says that operating as a trust constrained its ability to make acquisitions, and it has just announced an ambitious plan to raise funds to that end.  It will not surprise any lawyer with experience in both corporate law and trust law that operating as a trust is more constraining than as a corporation.  According to a newspaper article, CI incurred $11 million in costs relating to its plan as well as restructuring costs. 

Keep your eyes off the stock ticker and enjoy the day,

Chris Graham 

Full post as published by Toronto Estate Law Blog on November 13, 2008 (boomark / email).