Canada Finance Min Says No Trust-Tax Delay For Telus

OTTAWA -(Dow Jones)- Canadian Finance Minister Jim Flaherty Thursday said telecommunications company Telus won't be given a grace period before new rules to tax trusts take effect.

"We had to draw the line somewhere and we drew the line at those trusts that were publicly trading as of Oct. 31, 2006, and Telus was not," Flaherty told reporters after a question period in Parliament.

Telus in September announced its plan to convert to an income trust. But the company said it's reassessing the move after Flaherty late Tuesday announced a surprise plan to tax income trusts. Existing trusts will be taxed beginning in 2011. New trusts will start paying taxes next year.

The move roiled the market Wednesday, with the income trust index plunging 12.4%, and the broader market falling 2.4%. The S&P/TSX Composite Index recovered some of the losses Thursday, closing up 0.67% at 12130.73.

Flaherty said he had anticipated the market would fall on the tax plan, and that it was "very unfortunate" and "regrettable" that investors suffered losses.

But he defended his action. "The government has a duty to act in the long-term interests of Canada and Canadians and that's what we did in terms of tax fairness, in terms of making sure that we have a more productive economy going forward," he said.

Flaherty said there has been an acceleration in companies converting to trusts solely for tax reasons. He said he had heard "fairly reliably from several sources" that more conversions were in the pipeline.

"Not only an acceleration of the quantity but also the nature of the trust, moving into telecommunications and then potentially into financial services," he said.

-By Nirmala Menon, Dow Jones Newswires; 613-237-0668; nirmala.menon@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 3rd November 2006