U.S. And Canadian Securities: Regulatory Reform In 2006 And The Implications For 2007

Impact of Changes re Taxation of Income Trusts

The announcement of the Canadian Government on October 31, 2006 rocked not only the tax world but the Canadian public markets and the Canadian corporate finance world as well. While it seems relatively clear what the immediate impact on conversion of businesses into income trusts will be, the medium to long-term impact on Canadian corporate finance and M&A activity remains to be seen.

What is known at this stage is that real estate investment trusts are not negatively impacted in the same manner as "business trusts" and that REITs are expected to continue to be a significant investment vehicle in Canada. The Canadian Government has been lobbied by the energy trust sector for differential treatment and there are calls for a 10-year as opposed to a 4-year phase-in of the new taxation rules.