Integration interrupted: value loss from SIFT taxation

Abstract

An after-tax value loss ratio compares newly defined SIFT’s to income trusts affected by the taxation change announced on October 31, 2006. The legislation produces after-tax loss of roughly 8% based on 2010 tax rates, approaching 15% for those in higher brackets. Tax integration is incomplete, providing 5% of the loss, but the legislation penalizes the payout of capital gains and return of capital, hampering efforts to determine a clientele result in the sector. Reduction in pre-tax cash flows and additional after-tax loss in valuation, made conversion and privatization of trusts the only viable alternatives when the tax became effective.