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Losing tax loophole

Canuck pols set to change system

MONTREAl — Canuck pols are set to plug the tax loophole that allowed entertainment companies, including “CSI” producer Alliance Atlantis and exhibitor Cineplex Entertainment, to spin off all or some of their assets into tax-exempt income trusts.

Income trusts’ share prices were hammered on the Toronto stock exchange Wednesday following the announcement late Tuesday by federal Finance Minister Jim Flaherty.

Shares in the Movie Distribution Income Fund, which owns 49% of Alliance Atlantis’ Motion Picture Distribution, fell 6.1% to C$7.70 ($6.80).

The Cineplex Galaxy Income Trust, which owns 59.1% of Cineplex Entertainment, Canada’s leading exhib, saw its share price drop 17.7% to $10.

Over the past five years, many publicly traded Canadian companies have spun themselves off into income trusts because they pay almost no tax. Profits go directly to investors who pay income tax on their earnings.

Warning bells finally rang for the Conservative government when telco giant BCE, which owns part of media company Bell Globemedia, said it was going to transform itself into an income trust.

Now those plans will be re-evaluated, per BCE execs.

The government will begin taxing new income trusts immediately and already established trusts beginning in 2011.

It’s unclear what long-term impact the government’s move will have on the Canuck entertainment industry.

“We’re not aware of any impact on our business,” said Nuria Bronfman, a spokesman for Alliance’s Motion Picture Distribution.

But the decision comes at a bad time for Alliance Atlantis, which recently put its interest in Motion Picture Distribution up for sale.

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