Following a drastic fall last week, Canadian stock exchange shares have risen as buyers came back into the market a day after a government proposal to change the tax treatment of income trusts.About 10 percent of the country’s benchmark stock index are among the securities classification targeted by the proposal. Under the proposal, the Canadian government would impose a distribution tax on payouts by income trusts, taking effect next year for newly formed trusts, while existing trusts receive a four-year transition period.
The Finance Ministry announced the proposal last week, which will still need passage by Parliament in a vote scheduled for this week. Finance Minister Jim Flaherty announced the proposed tax-law change, arguing it is needed to close a loophole that results in the Canadian government missing out in millions in corporate-tax revenue. The trusts largely bypass company taxes and pay out the bulk of their cash flow directly to investors.
The motion before Parliament will allow the government to collect a tax on income trusts -- many of them in the oil and gas industry -- until formal legislation amends Canadian tax laws. Many trusts have spoken out loudly in protest, saying that in the past five years alone, trusts have invested $10 billion in oil and gas development and account for about 20 percent of Canadian crude oil and natural gas output.
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