Canada’s Finance Minister Jim Flaherty delivered an unpleasant Halloween surprise to income trusts, prospective income trusts and their investors on October 31, 2006. Stating that he was bringing forward measures necessary “…to restore balance and fairness to Canada’s tax system…”, the Minister announced proposals to tax distributions of income made by income trusts at corporate tax rates and to treat such distributions as corporate dividends in the hands of income trust investors. This bulletin describes and analyzes the income trust proposals (the “Proposed Rules”), discusses areas where we believe clarification or further relief may be warranted and considers the likely political agenda for bringing these proposals forward.

type Tax Law Bulletin - November 9, 2006 - Income Trust Proposals - All Trick, No Treat