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David Cross' Submission in Response to Finance Canada's Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships) consultation:

David Cross
Calgary, Alberta

I am an individual investor.

I invest in several income trusts, but almost all are connected with either oil and gas exploration or oil and gas service companies. My comments are addressed to those two sectors.

A key question is whether income trust vehicles impair investment and growth. My main observation would be that the limiting factor to growth in this sector is beyond any doubt human capital. The oil and gas companies that I invest in constantly refer to the enormous difficulty in hiring service companies to perform all of the activities related to drilling, completing, and maintaining wells. Capital expenditure plays no role in limiting exploration activity. In turn, the service companies constantly refer to the problem of hiring, training, and retaining staff. They are eager indeed to invest in new equipment to service the needs of the exploration companies. Investing in Builders Energy Trust and High Arctic Trust, I can tell you that these companies have very effective management staff that are retaining more than enough cash flow to promote expansion of their services. They also have no problem in attracting new investment because they offer an excellent return and the promise of very good growth.

Anyone with a passing knowledge of the labour market in Alberta can recognise that shortage of manpower is going to impair oil-sands development notwithstanding the massive investments promised by numerous oil companies, trust-structured or not. If there is a role for change in taxation policy then it clearly should be directed at this manpower shortage. Tax breaks for new immigrants who settle in areas of need perhaps? Taxation policies to encourage companies to sponsor students throughout tertiary education in engineering etc? Policies to encourage investment in much needed infrastructure in Fort McMurray? Surely changes in taxation of oil and gas income trusts will make no difference at all to the essential problem.

It seems to me that this exercise of reviewing the taxation of income trusts is a waste of effort considering the larger problems that confront us. Proper investment in the oil wealth of Alberta can greatly advance the cause of all Canadians. As with most wealth creation in Canada, the issue that truly handcuffs Alberta is chronic under-investment in both the training and attracting of people that are capable of the tasks that confront us in a new age of technology. With the exception of a well-supported and motivated minority of students, any employer can tell you that the quality of high-school graduates in Canada is nothing short of a disgrace. Our universities are conspicuous in their mediocrity with a huge proportion of teaching being done by contract faculty. The lack of attention to issues of quality of life in our cities is extraordinary. Great cities that are full of vitality attract truly talented people: Canada does not have a single city in the top tier. The fact is that these are all areas in which a vigourous and imaginative government can make a vital difference. Changes in tax policy can contribute. Please step back and take in the big picture!