Canada's Income Trust Fallout - Who Ya Gonna Call?

Trust Busters!

Am sure you know how that tune goes - catchy, corny, but apropos for this post.

Income Trusts are a different type of trust-busting, but that's what happened in Canada today - both figuratively and literally.

Our Income Trusts were literally broken up today, as the Federal government mandated an end to the dominant trend in Canada's high finance world. These trusts have been all the rage this year, and are rapidly spreading to all kinds of sectors as the tax benefits are simply too attractive to pass up for big corporations. As usual, money is at the root of the problem, as these trusts are diverting tax revenues away from government coffers, and it's simply getting too expensive for them to let it continue - despite the fact that our government is posting healthy surpluses. I digress...

Telecom isn't really the main player here, but it was the catalyst that brought in the change yesterday. Our two biggest telcos, Bell and Telus have been very public about their Income Trust conversion plans, and with their pending conversions coming back to back, it looks like this is what pushed the Feds over the edge, and they now stand to break one of their election promises to not tax the trusts.

So, that's the figurative angle to the story. The Feds have busted the trust of taxpayers/investors, who are now fuming about how much wealth they've just lost on paper in the last 24 hours. Talk about burning your bridges at both ends with voters and corporate Canada. Everybody is angry, but you know what - they have probably done the right thing. I'm not going to expand on this here - tune in to next week's podcast, when I talk with Mark Goldberg about this story.

A big concern for the government was a need to stem the tide before it becomes unstoppable. Telus - and especially Bell - are arguably Canada's shining corporate icons - and if they go trust, the next mega sector - oil and gas - will be next - at least those that haven't gone trust already. It's bit like a Coach's Challenge in the NFL. The Feds feel that Telus and Bell's plans are a bad idea, and they need to throw out the red flag before the telcos can get the ball back in play to negate the challenge.

I didn't see any U.S. coverage on this, but I'm not that surprised. It's not really a telecom story, but it's a HUGE story for Telus and Bell. There are many ramifications and angles to explore, and to give you a taste, here's a bit of the coverage in today's Globe & Mail. To get a feel for the vox populi, I urge you to review the reader comments where provided.

Quick sidebar - one of the hot stories these days is how print media is dying and journalists are finding other things to do (fellow bloggers Om Malik and Mark Evans are perfect examples). Well, you can't get reader comments immediately after the papers come out, but you get them in the online edition. There's a whole layer there of rich commentary that the print edition readers never see, which is too bad. Anyhow, have a read if you want to see what all the fuss is about, and what this means for Bell and, here, here, and here.

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