September 27th, 2023

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Canadian Conservatives Lost Their Way, Too

Chip Hanlon
Delta Global Advisors
March 15, 2007

"It is a paradoxical truth, that... the soundest way to raise the revenues in the long run is to cut the tax rates." -- John F. Kennedy

In recent years, investors have become familiar with Canadian energy trusts, also known as royalty trusts. Such companies produce from traditional oil and natural gas fields, typically mature fields that larger companies consider un-economical. As securities they function much like our more familiar REITs, paying essentially no tax at the corporate level if they distribute the bulk of their earnings to shareholders, which leads to very high dividend yields.

In late 2005, the then-ruling Liberal party merely aired the notion that it might change the popular royalty trust structure and Canadian investors-particularly retirees-went through the roof. In fact, the topic helped bring down the tenuous ruling coalition and it became one of the key issues that swept the Conservative party into power soon after.

To highlight: in an October 26, 2005 letter to the National Post, Prime Minister Stephen Harper, then the leader of the conservative opposition, wrote of the liberal government:

"So one must ask, why is the government clamping down on the retirement savings of seniors and investors? But it gets worse. Instead of immediately moving to assure markets that income trusts are here to stay, yada yada yada..."

Why "yada yada yada?" Because Harper's words turned out to be all hot air. In a political betrayal beyond even "read my lips," the same conservatives who rode into power as royalty trust guardians (and who have repeatedly promised to protect them since) did an about face on Halloween of last year, closing the door on any future trust conversions and giving existing trusts just four years to revert to ordinary corporations.

In an attempt to rush this change through parliament and get beyond the issue before a possible national election later in 2007, this proposed change was shrewdly packaged with tax credits and giveaways to seniors in order to mute their expected outcry. The Conservatives, a minority ruling government, also secretly lined up the votes of other parties prior to making their announcement, one which amounted to a de facto tax hike. Not surprisingly (except to those in government, perhaps), money has since poured out of Canada, more than $30 billion in shareholder value has been erased and the Loonie, as the nation's currency is nicknamed-aptly, it seems at the moment-has been steadily falling since.

So, why the need to pass any change at all? While many ill-informed reasons were stated, the change was driven by one thing: the feared loss of tax revenues. Conservatives ended up buying into the long-held liberal argument that the Canadian government was somehow losing money since the companies were paying no corporate taxes. The numbers, however, don't bear this out.

Although energy trusts represent 20% of Canada's oil and gas production and just 16% of revenues, they accounted for...

...the essay above is provided courtesy of Red County Magazine. The rest of this article can be read by clicking here.

-Chip Hanlon
Delta Global Advisors
Mar 15, 2007

Chip Hanlon is the President of Delta Global Advisors (, an SEC-registered investment advisor in Huntington Beach, CA. He is also a contributing writer to He can be reached at

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