Guidance On Permitted Growth For Income Trusts

The October 31, 2006 income trust taxation proposals indicated that "normal growth" of existing income trusts—but not undue expansion, such as the introduction of a disproportionately large amount of capital—would be permitted until the end of the transition period in 2011. On December 15, the Department of Finance announced the guidance that the markets have been anxiously awaiting on the meaning of "normal growth", "undue expansion" and related matters. This is a summary of, and some observations on, the December 15 announcement.

1. Benchmark Capital as of October 31, 2006

The key benchmark is the market capitalization of a Specified Investment Flow-Through (SIFT) on October 31, 2006. This will be measured by the value of a SIFT’s issued and outstanding publicly traded units, which does not include debt (even if the debt carried a conversion right or was itself publicly traded), options or other interests that are convertible into units. It appears that the value of exchangeable