This commentary was first published in the Financial Post on November 9, 2006.
With the surprise announcement last week by the Conservative government that distributions by income trusts would no longer be exempt from corporate-level taxation, investors in income trusts have suffered material losses to those investments.
Interestingly, investors with diversified portfolios of Canadian equities would have hardly noticed a difference in their wealth and are probably wondering what all the fuss is about.
While the TSX composite index suffered a substantial loss on the day immediately following the government's announcement, it has already made up most, if not all, of those losses. Since the announcement, then, the TSX Income Trust Index has underperformed the broader TSX Composite Index by approximately 10%. Even taking into account the current yield disparity in the two indexes (approximately 9% for the Income Trust Index and 2% for the TSX Composite Index), the TSX Composite Index still comes out ahead of the Income Trust Index by approximately 3%.