The Oil Baron Blues

Finance Minister Jim Flaherty probably has survived the great Income Trust storm of 2006, once the oil guys start whining about having to pay taxes, well gang it's time to turn out the lights the protest is over.

Flaherty who hasn't backed down since last weeks Canadian version of the October surprise, with his closing down on what is called the revenue leak of the trusts, seems to be getting more confident about his position as the days go by.

His legislation passed its first hurdle today as the Bloc Quebecois and the NDP gave it their support the plan in the Commons this afternoon. Only the Liberals voted against the plan, which should make for interesting debate over the next little while.

Pointing out that most Canadians believe that you have to pay taxes to support the things that they are demanding of their government, he seems to have finally found the successful tone to sell his message.

His comments came as the oil industry asked for one on one meetings to try and receive a special exemption from the soon to come taxation. They were quite upset last week as word broke of the change in the trusts and the fallout it will have in the oilpatch. Of course for an industry that regularly counts its profits in the billions, going cap in hand to the government seems a tad silly.

Even more to the point, they pretty well helped him sell his plan all by themselves. A politician who tries to bring back some of that escaping oil money, well that's going to be a pretty popular guy in most parts of they country me thinks.


Canadians back me, Flaherty says
STEVEN CHASE
Globe and Mail Update
November 7, 2006

Ottawa — Oil executives' pleas for an exemption from the Conservative government's income trust tax were rebuffed Tuesday as a confident Finance Minister Jim Flaherty said he now believes most Canadians support the surprise levy.

“I just think most Canadians are realistic people and they realize we have to pay taxes in this country to pay for valuable social services: health care, education and infrastructure,” he said.

Mr. Flaherty said he believes Canadians feel that “if corporations aren't paying their fair share then somebody else is going to pay, and that it's going to be them — and that it's the government's duty to act on that.”

Corporate executives who were looking for exemptions came away empty-handed from discussions with Mr. Flaherty, who rebuffed their pleas to spare sectors such as energy trusts from the tax.

“I've met with some people involved in the income trust business, energy trusts, and I've had some telephone conversations as well, as you can imagine,” he said.

“We are firm and certain in our resolve about the directions and the steps we're taking ... they are not changing.”

Jim Kinnear, chief executive officer of Calgary-based Pengrowth Energy Trust, met privately with Mr. Flaherty Tuesday but refused to comment on the reason for his meeting or the result.

“We're just here to visit some friends, but I appreciate your interest,” Mr. Kinnear told reporters Tuesday.

Separately, Tuesday, the trust tax received preliminary parliamentary approval in the House of Commons with New Democrat and Bloc Québécois MPs backing a Conservative motion to put it into effect.

The Tories must still pass legislation to make the levy law. A bill could take weeks or months to move through the Commons and Liberal-controlled Senate.

Mr. Flaherty said he has received many requests for exemptions.

“The telecommunications industry is of the view that it is different as well,” he said.

“Not surprisingly, people in various sectors of industry and the economy make the case that in their view, their sector should be treated differently.”

On Oct. 31, the Tories broke a campaign promise by slapping a levy on trusts, which pay few or no corporate taxes. Taxing them like corporations will plug a revenue leak and headed off an expected flurry of conversions.

The tax rate on trusts will start at 34 per cent — to mirror federal and provincial taxes on companies — and will drop to 31.5 per cent by 2011. It will apply to new trusts immediately and to existing trusts in the 2011 tax year.

(Ottawa will remit to the provinces a 13-percentage-point share of the 34-per-cent tax.) Mr. Flaherty opened the door for measures to ease the transition for existing trusts, which now must decide whether they want to convert back to corporations.

“If someone later on says there is some discrepancy that needs to be corrected, in terms of some minor adjustment to taxes in four years from now, we're reasonable people, of course we would look at that.”

Mr. Flaherty's concession follows comments from his parliamentary secretary, Diane Ablonczy, last weekend that Ottawa is looking at the possibility of “allowing trusts to reconvert to corporations without tax consequences.”