Telus, Canada's second-biggest phone company, announced late Friday afternoon it would not proceed with plans to convert to an income trust because of the Oct. 31 trust tax changes brought in by Ottawa.

"Telus management and board of directors believe that it is no longer in the best interests of the company and its shareholders to proceed with the reorganization," the company said in a statement.

Telus three-month trading

"The board has unanimously decided to not proceed with the conversion."

The Sept. 11 announcement by Telus to reorganize its structure from corporation to trust was believed to be one of the main catalysts behind the decision by the federal government to bring in a tax on trust distributions.

Telus rival Bell Canada — a subsidiary of BCE — announced on Oct. 11 that it, too, would convert to a trust. Less than three weeks later, federal Finance Minister Jim Flaherty, citing the potential loss of tax revenue, stopped the conversion trend by announcing the trust tax.

Companies that convert to trust status pay little or no corporate taxes. Instead, they pay out income to shareholders in the form of distributions.

Flaherty's announcement hit the whole trust sector hard, with many losing 15 to 20 per cent of their value. Shares of Telus and BCE fell, too, as investors had already bid up their shares on the prospect of converting to trusts.

Existing trusts were given a four-year grace period before the new tax would apply. But Telus and Bell Canada did not qualify since they had not started trading as trusts by the time Flaherty announced the policy change.     

BCE has said the trust conversion of its Bell Canada subsidiary is under review, but has not announced a final decision.