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Are income trusts coming home to roost?
U.S. President Barak Obama has branded him a corporate welfare bum --- town gossips claim he is a trillionaire --- the Old Timer lives in subsidized housing and spends his days dumpster diving

01-Nov-06 -

For the last fifteen years Toronto's Bay Street has been peddling ponzi or pyramid schemes called "income trusts". Using a labyrinth of legal and accounting mumbo-jumbo and backed by the Bay Street controlled Ontario Securities Commission, Bay Street promoters have transferred assets to non-company income trusts, disregarded the earnings of the non-companies and paid out to investors more than the non-companies are earning. For example Vancouver's Art in Motion Income Fund lost $3.36 in 2005, used money begged and borrowed to pay investors 60 cents per unit. Investors got paid a return of 24.79% - so who's complaining? But what happens when Art in Motion runs out of unearned money? No one listened to curmugeonly forensic accountant Al Rosen in February when he warned that income trusts were pyramid schemes. Or when he pointed out in October last year that income trusts were using bean counting mumbo jumbo called "distributable cash" to fool investors. Or his article in Canadian Business a year ago September: "Poor disclosure clouds income trusts. Why aren't Canadian regulators clearing the air?"

Today the other shoe dropped and may have brought income trusts home to roost. For years the Canadian Department of Finance hadn't been able to double tax income trust investors the same way they double tax investors in ordinary companies. Last month megacompanies BCE and Telus announced they would convert to income trust to avoid double taxes "Enough already!!!!" screamed Department of Finance bureaucrats and forced the Harper government to break election promises and assurances to foreign investors, change tax laws and double tax income trust investors. The Toronto Stock Exchange on Bay Street dropped nearly 300 points (2.4%) today. Will the crash blow the cover on income trust ponzi schemes, snowball, shake the shaky foundations of Bay Street?

For a list of Income Trusts with details about "distributions" (remember distributions are not the same thing as earnings) courtesy of InvestCom click here.

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