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Parkland Income Fund's Submission in Response to Finance Canada's Tax and Other Issues Related to Publicly Listed Flow-Through Entities (Income Trusts and Limited Partnerships) consultation:
November 15, 2005
The Honourable Ralph Goodale
Department of Finance Canada
140 O'Connor Street
Ottawa ON K1A OA6
Dear Minister Goodale,
I am writing you on the issue of potential changes to the tax treatment of income trusts.
The Parkland Income Fund is a Western Canadian marketer of petroleum products and convenience store merchandise. We serve customers in the four western provinces plus the Yukon and Northwest Territories, Parkland operates under the brands Fas Gas, Race Trac Fuels, Short Stop Convenience Stores and Great Northern Oil through 450 service stations. We are also currently expanding our wholesale business to supply fuel to over 150 Esso stations in Saskatchewan and Alberta.
Parkland converted to an Income Trust in 2002, and since that time, has continued its steady growth in a low growth industry. This is in part propelled by the necessary discipline imposed upon us by the requirement to maintain monthly distributions to our unitholders. As examples of our improved productivity from 2002 through 2004, Parkland has increased its retail per store throughput by approximately 10%, increased its non-fuel margins by 47% and reduced net unit operating cost by 18%.
With this, we have never been short of capital and have twice increased our distributions to unitholders. Should we need to raise further capital for expansion, we have adequate ability to borrow funds or issue new units. The only impediments to expansion are our ability to bring forward good return projects in a highly competitive industry.
We estimate that Parkland has about 3,500 unitholders. Since conversion to Trust status we believe our units have largely traded to retail investors. Our best data indicates that they are widely dispersed geographically, including 34% in Quebec, 27% in Ontario, 23% in Alberta and 11% in British Columbia with most of the remainder in other Canadian provinces.
Many of our unitholders are highly dependent on unit distributions. Today, trust units form one of the few high cash yielding components of a savings portfolio. From August 31, 2005 prior to the September Federal Government announcements relating to Income Trusts, to October 31, 2005 our units dropped from $20.15 to $16.95 or 16%. This decline represents approximately $40 million reduction in our unitholders' savings. While we cannot say that all this decrease related to the current uncertain tax environment, we are convinced that this is the major factor.
You undoubtedly have had many well researched academic analyses on the income trust issue. We do not intend to repeat these arguments. Our issue is the impacts this tax uncertainty and potential tax changes are having on the savings of our many unitholders. We encourage you to move swiftly to remove the uncertainty with a plan which restores the value lost and which respects the economic efficiency and discipline of the income trust model.
Yours very truly,
PRESIDENT and CEO
c: Mr. Bob Mills, MP, Red Deer, Alberta