Bell, Telus income trust plans under review
Canada's top two phone companies, BCE Inc. and Telus Corp., said Wednesday they arereviewing their plansfor income trust conversions after Finance Minister Jim Flaherty announced a new tax on trust distributions.
BCEannounced on Oct. 11 that it planned to convert Bell Canada, the country's top phone company, to a trust, a move that would save it $800 million in tax by 2008.
However, Flaherty's new restrictions stipulate that trusts that begin trading as of Wednesday or later would face the new tax measures in 2007. Existing trusts would have a four-year transition period and would not face the new rules until 2011.
That means the Bell Canada trust conversion would not qualify for the four-year grace period because it has not begun trading as a trust.
In a conference call with financial analysts,Michael Sabia, president and CEO of BCE and chief executive officer of Bell Canada, said he was "clearly disappointed" with the federal government's move.
Sabia said the company willreview itsoptions over the coming days, but plans to eliminate BCE Inc.'s holding company operations will go ahead.
BCE announced plans for the conversion after its top competitor, Telus Corp., announced a similarplan in August 2006.
Telus said Wednesday it is also reviewing its options following Flaherty's announcement.
Telus said it anticipated its conversion to a trust would have been completed in late January, but said there is now no assurance that it will proceed with the conversion.
Shares of both companies suffered heavy losses on Wednesday. Telus shed $8.78 to finish at $56.15, while BCE dropped $3.60 to close at $28.10.