Yesterday Bell Canada announced it was changing its corporate structure into an income trust and doing away with its holding company. Why would they do that?
In Canada, the Income Trust structure provides for a tax advantage. If a company organized as an Income Trust distributes most of its profits it does not have to pay corporate taxes. The owners of the company, called unit holders instead of shareholders, are taxed individually on the distributions, avoiding double taxation.
Without corporate taxation, Income Trusts have higher profit margins and can thus compete more efficiently against their taxable peers.
On the downside, the government of Canada loses tax revenue. The company does not have as much retained earnings to reinvest in the business. If a company is in a fast growing, capital intensive business, an Income Trust may not be the optimal corporate structure.
In the immortal words of my personal hero, General "Vinegar Joe" Stillwell, "Illegitimanti Non Carborundum" (Don't Let the Bastards Grind You Down).
Your many educational and insightful contributions to this blog, contrasted against my own frequently insipid counterpoint commentary, have together been worth every penny of minimum wage pay scale. There is stuff contained in your postings that only a handful of astute financial professionals ever knew, before reading it here first. Be proud of what you've given to all of us through your authorship of this blog, and also be thankful you didn't give up your day job!
Posted by: Bob Hansell | October 12, 2006 8:08 PM | Permalink to Comment