Canadian Income Trusts Canadian Royalty checks - David
QUESTION: I've heard that U.S. citizens can get Canandia Royalty Checks and they are a very good investment. What are Canadian Royalty Checks and how would a U.S. citizen go about getting them? --------------------------------------------------------------------------- david ingram replies: This whole thing was total garbage. The following earlier answer from last November will help you. of course, since I wrote this, the Canadian Government was defeated but not before they had announced new rules that made Income Trusts more desirable. However, that new legislation was not passed and a new Canadian Government was elected on January 23. We do not know WHAT the new government will come up with. However, in many person's opinions, the defeat of the previous government was largely due to a scandal which developed around the premature release (a leak) about the new legislation. A whole lot of people profited greatly by acting in advance on the information which was released officially later on that day. --------------------------- The old answer follows: Sent: Thursday, November 24, 2005 12:26 PM To: taxman at centa.com; centapede at lists.centa.com Subject: Canada's Govt.-Authorized Royalty Checks Can Ensure UR MONEY David, Do you know anything about this scheme or scam? http://www.agora-inc.com/reports/TWP/ETWPFB10/?o=194017&u=2429685&l=781476 CXXXXXXX WXXXX (cross-border tax client). ================================================== david ingram replies: It is almost laughable. This has been travelling around for a couple of years now. They are referring to INCOME TRUSTS SUCH as Enerplus (ERF), Petrofund (PTF) or Provident Energy (PVX). These have been paying 15% (not 12) for most of the last 4 years. The laughable part is that yesterday Canada announced new legislation to tax the income starting in Jan 2007. It is expected that the news will reduce value of Income Trusts by 20 to 30%. A kicker is that a non-confidence motion TODAY (Thursday the 25th) will mean that there is going to be an election and if the liberals are not re-elected, the legislation may change again. Be that as it may, the income Royalty Trusts have NOTHING to do with Canada' social programs and are NOT ( I repeat) NOT guaranteed by the Canadian Government. Rob Garrick wrote a great article in the Globe and Mail. I am taking the liberty of repeating his article here because I am too lazy and too tired to bother writing more here. Congrats Rob on a great article. ================================= News from globeandmail.com Tuesday, October 25, 2005 The wacky world of income trusts, American style ROB CARRICK You won't know whether to laugh or cry when you see what a U.S. investing newsletter has to say about income trusts. "Canada's government-authorized royalty checks [that's the term used for trusts] can ensure you never -- ever -- run out of money," says a promotion for the 12% Letter, which specializes in high-yield income investing. "Smart Americans cashing in on this program are pocketing $59,000 to $162,000 every 2 to 3 years." What's laughable is how the 12% Letter offers up yet another example of the cockeyed view Americans have of this country. But there's a serious side to all of this, too. With its idealized picture of income trusts as a government-authorized investing bonanza, the newsletter highlights the way in which some investors in Canada misunderstand trusts. It also plays into some of the criticisms that the anti-trust crowd have raised. According to the 12% Letter, income trusts are being referred to by some financial types south of the border as the "Canadian royalty checks program." Readers of the newsletter are advised to think of trusts as an example of the great social benefits of being a Canadian. "You probably already know that Canada is famous for its huge social programs -- like free health care, the Guaranteed Income Allowance (otherwise known as 'The Allowance') and federal training and employment programs," the promo for the 12% Letter says. "What you may not know is that there's a unique situation right now in Canada that is allowing Americans to fund part or nearly all their retirement." The 12% Letter is written by Craig Walters, a former equity analyst and currently the managing editor of Stansberry & Associates Investment Research, which is based in Baltimore. Those of you who are familiar with the wacky and wild world of investment newsletters will have an idea of what we're dealing with here. There are headlines about investments offering the moon and stars (43-per-cent bonds, for example) and breathless prose about opportunities. The information about trusts -- sorry, the "royalty checks" program -- is a bit, um, garbled. But it does capture the gold-rush mentality that took hold of the trust market just before Finance Minister Ralph Goodale made it clear the government was taking a hard look at the trust sector. Take, for example, this business of trusts being a government-authorized money tap. As recently reported by my colleagues Steven Chase and Patrick Brethour, the trust structure has never formally been adopted by Ottawa. The reality is that the government had almost no role in the creation of trusts, other than a technical tax ruling made two decades ago that authorized the trust structure. And yet, we have the 12% Letter telling readers that in trusts, the Canadian government has found a way to redistribute money from wealthy corporations to average citizens. "It's like being put on the board of directors of the biggest and richest companies in Canada -- because the profits are sent directly to YOU," Mr. Walters writes. Unfortunately, lots of investors have bought into the belief trusts were put on earth to help people who wanted investment income but couldn't live on the pitiful returns of bonds and term deposits. No question, Ottawa fostered this belief by letting the trust sector grow to huge proportions before getting serious about controlling it. But the reality is trusts have always been vulnerable to government intervention. One of Mr. Goodale's major concerns about trusts is that they deprive the government of hundreds of millions in tax dollars. Trusts pay no taxes themselves, instead passing on earnings to investors who are liable for taxes according to their personal circumstances. The 12% Letter offers a direct provocation on the tax issue because it recommends trusts to American investors, who pay less tax on trust distributions than Canadians. An American trust unitholder would face a 15-per-cent withholding tax on money paid by a trust, whereas Canadians who own trusts outside a registered retirement account would face tax rates as high as 39 to 48 per cent, depending on the province of residence. In the world of the 12% Letter, trust distributions are an almost magical source of money: "Some folks live solely off the checks . . . others reinvest the money . . . and some use the money for extravagant and exotic luxuries." This hyperbole is a killer for trusts because it supports the contention by some critics that they're a moneymaker for the wealthy and meaningless to the regular folk. In truth, a wide swath of people have benefited from trusts through direct investments or indirectly through mutual funds and pension funds. Misinformation is rampant on all sides of the trust debate, which means that finding the right balance between the needs of government and investors is going to be hard. Over to you, Mr. Goodale. The future of the Canadian "royalty checks" program is in your hands. rcarrick at globeandmail.ca ================================ Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a regular guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com <http://www.600am.com/> Call (604) 280-0600 to have your question answered. BC listeners can also call 1-866-778-0600. Callers to the show and questioners on this board can also attend the Thursday Night seminars on finance and making your Canadian Mortgage Interest deductible. And for those in the Vancouver area, Fred is running an infomercial for 1/2 hour every night in October on Channel 10 television at "groooaaannnn" 1 AM in the morning. It has a couple of useful concepts in it that can be recorded to really get the idea. David Ingram's US/Canada Services US / Canada / Mexico tax, Immigration and working Visa Specialists US / Canada Real Estate Specialists Home office at: 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Cell (604) 657-8451 - (604) 980-0321 Fax (604) 980-0325 Calls welcomed from 10 AM to 10 PM 7 days a week (please do not fax or phone outside of those hours as this is a home office) email to taxman at centa.com <mailto:taxman at centa.com> www.centa.com <http://www.centa.com/> www.david-ingram.com <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com <http://www.centa.com> . If you forward this message, this disclaimer must be included." Be ALERT, the world needs more "lerts" This from "ask an income tax and immigration expert" from www.centa.com <http://www.centa.com/> or www.jurock.com <http://www.jurock.com/> or www.featureweb.com <http://www.featureweb.com/> . David Ingram deals on a daily basis with expatriate tax returns with: multi jurisdictional cross and trans border expatriate problems for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax Immigration Wizard Antarctica Rwanda Guru Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Alaska, Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Garland, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. 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