The Ontario government is moving to make it legally clear that investors in publicly traded income trusts cannot be held liable for the activities of the trusts.

The Liberal government said in its first budget Tuesday that it will introduce technical legislation to clarify the rules — a long-awaited move which had been hinted at in the last Conservative budget in March 2003.

“Income trusts are a significant, relatively new investment vehicle for a lot of individuals and they want some protection against unlimited liabilities for themselves,” said Gerry Phillips, chairman of the Management Board and the minister responsible for securities legislation.

“I think that’s important and something we made a commitment to do.”

Ontario will be the third province to create such legislation, following Quebec and Alberta.

At present, although legal opinions differ, there are concerns that income trust unitholders — unlike investors in limited-liability corporations — could be held legally liable if disaster befalls a trust.

The liability issue has kept some large institutional investors away from the trust sector.