The Oil Drum

Oil and gas trusts to lose up to $2-billion in value: report

Canadian oil and gas trusts will lose up to $2-billion in net present value over the life of their assets because of the federal government's tax changes to trusts, a Scottish consultancy said in a report released Friday.

Anger, relief over tax move

Ottawa's decision to start taxing income trusts has opened up a sharp fault line in the executive suites of Corporate Canada.

The ruling has emerged as a divisive issue, pitting those who run trusts against those in non-trust businesses, according to a new survey of top executives.

The quarterly survey of 175 chief executive officers, chief financial officers and chief operating officers shows a dramatic split among those who back Ottawa's move and those who dislike it. The quarterly C-Suite survey was conducted by the Gandalf Group for Report on Business and ROB-TV.

About 58 per cent of those surveyed support or strongly support the decision, while 40 per cent oppose or strongly oppose it.

Finance Minster Jim Flaherty recently gave the income trust sector an unwelcome surprise. Prime Minister Harper had previously promised to "stop the Liberal attack on retirement savings and preserve income trusts by not imposing any new taxes on them", but the government underestimated the momentum towards trust conversion and was facing a very significant loss of tax revenue.

Not satisfied with merely preventing new trust conversions, Flaherty decided to impose retroactive tax measures on existing trusts. Many of these existing trusts happen to underpin conventional oil and gas production in Alberta - in fact the trust structure was initially developed to facilitate production from mature assets in the oilpatch. The proposed tax changes could therefore have a significant effect on energy production and the Alberta economy specifically. Departing Alberta Premier Ralph Klein welcomed the tax measure.

Alberta was hurt by the trust tax loophole. We were losing hundreds of millions of dollars in revenue.

However, he and the rest of Alberta may well be far less pleased once the implications of this experiment in retroactive tax policy come home to roost.