CANADA - The Ontario Teachers' Pension Plan (OTPP) said it welcomed the new tax on income trusts as it does not discriminate against pension funds, although it does raise the dividend tax rates for pension funds.
The OTPP had called for a taxation policy on income trusts that was "fair" to pension funds. "We are pleased to see this is the case with the government's announcement," the fund said.
The new tax will impose a distribution tax - at corporate income tax rates - on payouts by income trusts and investors will be taxed as though these distributions were dividends.
This will come into effect in 2007 for newly formed trusts, while existing trusts will get a four-year transition period.
"The four-year implementation period will enable us to gradually make any necessary adjustments to our portfolio," said the OTPP.
In recent years, income trusts have allowed OTPP to find alternative investments that make up the difference resulting from low interest rates. Following the tax announcement the fund said, "the challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them."
The Canada Pension Plan Investment Board also expressed relief at the tax changes. "The decision by the government to create a level playing field . . . is a suitable outcome," CPP board senior vice president Ian Dale said.
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