Remember income trusts? The high-yielding business structures were pretty much obliterated at the beginning of this year as new tax treatment was implemented. But they may be making a comeback, thanks to a new structure devised by PwC.
The new version of the trust has been dubbed the foreign asset investment trust (FAIT). The legislation that effectively destroyed the income trust contained a specific exception for foreign assets from which earnings flow to Canada.
“Canadian investors can invest in a U.S. business but do not have to pay U.S. tax or complete a U.S. tax return,” says Murray Lee, a partner with PwC. “Under the old income trust system, U.S. citizens were coming to Canada and pulling out money. This is the reverse, where Canadians are making money abroad and are being taxed for those gains back in Canada.”
PwC has now helped two energy clients to use the foreign asset investment trust (FAIT) structure and to go public as a publicly traded mutual fund trust. PwC is currently working with North American Oil Trust to complete their IPO and implement the FAIT structure.
In January 2006, during the election campaign that first brought them to power, the Conservatives promised to “stop the Liberal attack on retirement savings and preserve trusts by not imposing any new taxes on them.”
Of course, that promise was famously discarded in a mini-budget delivered on Hallowe’en in the same year. That decision effectively wiped out $160 billion of market value for income trusts, according to PwC.