The Department of Finance has lessened the uncertainty for the growth of existing income trusts and limited partnerships with the issuance of proposed guidelines clarifying growth limits for these types of investment vehicles, according to tax professionals at Ernst & Young LLP.

Most equity offerings, mergers, reorganizations and acquisitions that were put on hold will now be able to proceed with greater certainty with respect to their tax consequences and without jeopardizing their deferral of the proposed distribution tax announced on Oct. 31, 2006.

“The proposed guidelines seem generous enough to allow for the execution of most existing business plans,” says Greg Boehmer, a tax partner with Ernst & Young. “The trust sector can take comfort in its ability to raise capital with a greater degree of confidence.”

There remain, however, some gaps in the guidelines that the Department of Finance will need to further clarify. “This is very much a good news, bad news scenario,” says Boehmer. “Though the Department has clarified what is meant by “normal growth” in the new guidelines, they are not in the form of draft legislation, so there is some lack of specificity.”

“These guidelines are favourable to the income trust sector, but given that there is a minority government in place and the possibility of a spring election, it is possible that none of these proposals will become law during the tenure of the current government. The sector continues to cope with some insecurity,” says Warren Pashkowich, a tax partner in Ernst & Young’s Calgary office.