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Tax Changes Make Bell and Telus Reconsider Income Trust Conversions

7:50 am on November 2, 2006 | Category: Business, Corporate, Regulation, Telecom Services

Canadaâ€™s leading telecommunications carrier, Bell Canada Enterprises, is reviewing its decision to convert to an income trust format, after federal Finance Minister, Jim Flaherty announced plans for a new tax on trust distributions.

BCE first announced plans to become an income trust just over three weeks ago, citing the fact that it would save up to $800 million in taxes over the next two years. Bell Canadaâ€™s BC-based competitor, Telus Corp., had made a similar announcement a month earlier.

The governmentâ€™s new restrictions, however, which are intended to stem the growing tide of income trust conversions, mean that neither Telus nor Bell will be able to reap the tax advantages of the conversion. Existing trusts will be given a four-year grace period before the tax applies, but since the two telecom giants have not yet fully converted, they will become subject to the changes immediately.

Bell Canadaâ€™s CEO, Michael Sabia, noted that he was â€œclearly disappointedâ€ with the federal governmentâ€™s move, and said that the company will review options over the coming days.

Telus also revealed that it is reconsidering its income trust decision, which would have taken effect in January 2007.

Both companies suffered heavy losses on the Toronto stock market yesterday, with BCE dropping $3.60 to close $28.10, and Telus finishing at $56.15, after a loss of $8.78.

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