Many people have been asking how when an income trust is taken over by a private equity fund, pension fund or other form of structure they avoid paying tax?
More importantly how can they get in on the action?
Here is how.
1) You will need one of the following,
a) A friendly banker
b) Lots of money for a few weeks or:-
c) Friends with lots of money, you have the option of also borrowing, why stop at one trust.
d) You are a registered Canadian Pension Plan
2) You need a target, any cash flow rich public company will do, thanks to Canada’s Jim Flaherty income trusts are now on sale 20% off, happy hunting.
Jim obligingly slapped a new 31.5% tax on them which drastically cut their market value, but don’t worry with your new structure you won’t have to pay any tax.
3) Once you have purchased your Income Trust use all the money that was paid to the former unit holders as distributions to pay the interest on the loan which is tax deductible, you should have lots of money left over which will be taxable. Don’t worry this is what accountants are for.
4) These steps are very important, your accountant will now load up the company with debt and additional expenses, purchasing new toys or another company for you, thus ensuring you never make a significant profit or pay any taxes unlike those poor income trust investors.
5) What to do with all that lovely money which is coming your way? There are a few rules your accountant will help, but how about?
a) Starting your own management and advisory firm (in the Cayman Islands of course) and charging your Canadian company heavy fees, $10 million a year for the onerous task if reading the annual report seems reasonable.
b) Make sure your friends and family form their own advisory firms,
c) You will need new branch offices with suitable accommodation in various parts of the world how about The Bahamas, Dubai, Luxembourg or Paris?
d) You will need new company cars, plans and yachts.
e) Call me I really want to help. (for a modest fee)
6) As you site on the deck of your new multi million dollar yacht watching the sun go down raise a glass to Jim Flaherty and the folly of Canadian politicians
If you are a pension fund none the above need apply, but feel free to adopt any points that appeals.
The government recognizes your members are special unlike 70% of Canadians, the income from these companies you own can flow entirely tax free into your fund. It thanks you kindly for the tax that pensioners from your plan will pay during there retirement.
Ordinary Canadians were able to do the same thing with RRSPs and Income Trusts but Jim fixed that with his Tax fairness plan. Jim wouldn’t even thank them for the tax they were paying in retirement, repeatedly before a parliamentary committee he said money from there grubby little hands didn’t count.
The government of Canada recognizes that your members are indeed special and the large pensions they will be capable of collecting from your fund will put them at the burden of having to pay high taxes in retirement, to ease this burden it introduced Income Splitting to help you, it won’t help the majority of Canadian but you are truly special. (and coincidentally mainly government employees)
Please send a thank you note to Stephen Harper and Jim Flaherty.
This is one of several ways how an ill conceived new 31.5% tax slapped on income trusts is creating a loss in tax revenue, actually creating the tax leakage Jim Flaherty claims he was trying to stop, unfortunately for Canadians the rest of his policies are about as well thought out.
Gath Turners Town Hall Meetings on Income Trusts and
Finances in western Canada Schedule
