“We expect to see a market correction in the order of at least 10% to 15% as a result of the proposal,” said BMO analyst Gordon Tait.
Nine of the 10 sectors tracked by the TSX finished lower. The financial sector was the lone gainer, up 0.2% as many investors switched out of income trusts into banking stocks, according to Fred Ketchen, director of equity trading at Scotia McLeod in Toronto.
“Most of our banks have half-decent yields, [but] nothing like you’re going to get from an income trust,” said Ketchen, who noted that some trusts were providing yields of up to 14%. “Traditionally, our major banks have been very generous in increasing their dividend payouts … and the bank sector continues to grow here.”
Flaherty estimated the tax leakage caused by the current treatment of trusts as being on the order of C$500 million, or C$800 million including BCE and Telus.
“We would point out to the minister that a potential 10% correction in the capitalization of the trust market equates to an approximate C$25 billion destruction of wealth,” said BMO’s Tait. “A C$25 billion hammer to fix a C$500 million to C$800 million problem does not look like a very equitable solution. “
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