Trust tax imposed in Canada may fuel foreign takeovers in energy sector, warn industry experts.
Govt. of Canada's plan to impose taxes on income trusts to curb declines in govt. revenues may fuel takeovers in Canada Energy sector by overseas buyers looking for cheap assets. Billions of dollars have already been lost since the govt. made this announcement.
Meanwhile, Canadian govt. has no plans of removing tax imposition on income trusts, a govt. aide has confirmed, reports Reuters. Jason Kenney, parliamentary secretary, said that the Finance Minister has made a tough decision so govt. has no plans to eliminate the taxes. This has been done to ensure tax fairness and prevent key corporate sectors from opting out from corporate taxation that would be morally or fiscally irresponsible.
Canaccord Adams that became a strong defender for trusts tinkered by Liberals responded in negative to govt.'s policy. As per their report, the tax proposal will put a "for sale" tag on energy resources on Canada as competitive cost of capital benefit will be taken away and a rush of international takeovers will probably emerge. Energy security is essential for national interests & it is also important to have key energy decisions being made in Canada & not in overseas jurisdictions.
"Trust index went down by nearly 16% in just two days after the announcement. Declining oil & gas prices & the new rule may result in further decline of around 30%, or even more," said an analyst at RNCOS.
Most vulnerable trusts, as per a report by Dirk Lever, an RBC (Royal Bank of Canada) analyst, include ARC Energy, Canadian Oil Sands & Penn West as these firms are working on long-term projects & don't have any controlling shareholders.
Income trusts started in 1984 when John Brussa, a tax lawyer & Marcel Tremblay, investment banker, established an organization for selling aging oil-wells to retail buyers. The trusts, however, took some time to establish themselves but later became a key element in oil-patch food chain.
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