OTTAWA -- Jim Flaherty, the Finance Minister, indicated Wednesday his government stands prepared to clamp down on efforts by income trusts that might be trying to avoid tax payments once 2011 rolls around.

Meanwhile, in his first public comments about a White House plan to dramatically shake up the U.S. banking sector, Mr. Flaherty reiterated his government has no plans to impose any new taxes or pose additional limits on executive compensation when it comes to Canadian banks. He said the U.S. plan, which would prohibit proprietary trading and ban bank investment in hedge funds and private-equity firms, would likely generate much discussion at next week’s meeting in Iqaluit of finance and central bank officials from the Group of Seven countries.

As for income trusts, 2011 marks a crucial year as existing trusts must either convert to corporate status or begin paying a new trust tax Ottawa announced back in 2006.

But trust executives, with the help of legal and financial advisors, have reportedly undertaken aggressive measures -- such as merging with companies that have huge tax losses on their books -- to avoid tax payments and continue dishing out hefty dividends. Meanwhile, shareholders could continue to access a favourable dividend tax credit.

The move could reportedly cost Ottawa hundreds of millions of dollars in tax revenue.

When asked about these undertakings -- as detailed in Wednesday’s edition of the Financial Post -- Mr. Flaherty told reporters at a briefing regarding Haiti that it is the government’s job, on behalf of the bulk of taxpayers, to close “loopholes,” wherever they emerge.

“If there is an issue with respect to income trusts, we will have a look at that as well,” said Mr. Flaherty, adding issues regarding tax loopholes were part of recent budget preparations, without elaborating. “The change to the rules in income trusts was to ensure there was fairness in the tax system, and we will continue to aim for that goal.”

Mr. Flaherty, and his government, came under intense criticism when he moved to change the rules regarding trusts back in 2006, after the Prime Minister Stephen Harper pledged in his winning election platform not to slap taxes on income trusts.

The new levy, at 31.5%, was required to stop a series of corporate heavyweights -- from Telus Corp. to the former Encana -- from converting to the tax-friendly investment vehicle. Without the tax, Ottawa stood to lose at least $500-million annually in receipts, according to its 2006 announcement.

Mr. Flaherty also spoke for the first time about controversial banking reforms proposed by President Barack Obama that initially sent financial markets into a tailspin. Details remain vague, but as potentially envisaged they could curb the size of U.S. banks.

Mr. Flaherty said he has spoken in recent days with his international peers about steps that have been taken and are proposed. He expects “broad-ranging” talks in Iqaluit when finance ministers and central bankers gather for a G7 meeting in Nunavut.

“We will discuss this in detail,” he said.

He reiterated, though, Ottawa does not plan to slap new taxes on Canadian banks, or impose new “limits or terms” on executive compensation.

“Canadians did not have to put taxpayers’ money into our financial institutions. We did not have to bail them out. It is a rather different situation in other jurisdictions, like the U.S.,” Mr. Flaherty said.

At the World Economic Forum in Davos, Switzerland, global business leaders have warned policy makers that a “populist” crackdown on the financial services sector could crimp the fragile recovery from the deep recession. Mr. Flaherty leaves Wednesday night to attend the conference.

In other developments, Mr. Flaherty said:

• He intends to meet with the country’s major private-sector economists next week to discuss growth projections, in an effort to help Finance craft its March 4 budget.

• He would discuss aid for Haiti with his industrialized colleagues at the coming G7 meeting in Iqaluit, and called on other countries -- singling out Taiwan and Venezuela -- to cancel outstanding debts with the Caribbean country in an effort to help the nation rebuild after a devastating earthquake.

Financial Post