This is in reference to past postings where the subject of oil / gas / coal royalty stocks have been discussed as a possible very high 'interest' (actually high dividend) alternative investment. Basically, the Canadian gov't has set a new tax rate of 34% which will apply to royalty trust company profits, thus greatly reducing the amount of dividends they can pay (i.e. reducing their equivalent 'interest rate' by at least 1/3rd).
I'm not sure yet how the Canadian gov'ts move would actually affect the taxes which must be paid by non-Canadians who own shares of these royalty trust stocks. However, Canadians and non-Canadians alike will wind up taking their financial lumps as the share price of such Canadian royalty trust stocks appears to be falling off a cliff.
The 'mechanism' behind this seems to be that the typically high individual and corporate tax rates in Canada had created an incentive where wealthy Canadians and Canadian corporations could 'shelter' some of their income from taxes via the purchase of / conversion to Canadian royalty trust stocks - thus creating a strong 'buyers market' for these stocks. However, with the announced tax change, this tax 'shelter' incentive has been erased, causing those rich Canadians to sell off and reinvest in other sectors which now have a better risk versus (after-tax) reward equation.
Note that there are also royalty trust stocks which are NOT Canadian based, and are thus not covered by this new tax. However they do occupy the same market sector, and thus may have caught some 'downdraft'. Disclaimer the only royalty trust stock I own at the moment is WTU ... a natural gas royalty stock based on wells in the Southwest US ... which wasn't affected much by the Canadian tax change so far.
Also, as discussed in many other threads, in today's global economy any change in taxation and spending policy by a particular country tends to set in motion international reactions regarding cross-border cash flows, international investments etc. which that particular country is powerless to prevent. It remains to be seen how this will play out in the long run in terms of Canada's economy, but the Loonie's exchange rate dropped significantly right after the announcement was made.
There has already been some speculation done, with the result being that the Canadian gov't decided to simultaneously increase the 'low income tax credit' paid out to Canadians over age 65 to compensate for the loss of value / income the change in royalty trust taxation policy is undoubtedly going to create on their retirement savings / pension funds ...
Of course this doesn't help younger Canadians much, nor does it help older Canadians with incomes that are too high to qualify for the tax credit subsidy, nor does it help Canadians of any age who are employees of such corporations.
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