OTTAWA -- Telus Corp. chief executive officer Darren Entwistle yesterday fired back at what he called "very superficial" criticism of his company's planned conversion to a trust, saying it's by no means a tax dodge and won't handicap his firm's ability to reinvest and grow.
In fact, Mr. Entwistle said, Telus seeks to erase the Canadian stigma of income trusts as a structure designed mainly for creaky old businesses with few growth prospects.
"It's my hope we can breach that stigma because of the characteristics of our business," he told reporters following a speech to a Canadian Chamber of Commerce lunch. "We are not a typical trust. We are the . . . antithesis of that," he said of the stereotype of trusts as mature businesses with stable income that pump cash out to investors at a steady clip instead of reinvesting it.
In contrast, Telus plans to boost cash distributions over time while keeping up the same pace of reinvestment in its technology-heavy business, from wireless offerings to television, Mr. Entwistle said.
"I can tell you categorically that we are going to carry on, unabated and undiminished, making these investments in Canada."
Controversy over tax leakage from income trusts re-erupted this fall after Telus and BCE Inc. announced plans to convert, moves that would make them the biggest trusts in Canadian history. University of Toronto tax expert Jack Mintz said these conversions to this corporate-tax avoidance structure are helping double Canada's tax leakage problem to $1.1-billion in lost revenue annually for Ottawa and the provinces, from $540-million in 2004. Income trusts pay little or no corporate taxes, but instead shovel out the bulk of earnings and cash flow to investors.
Yesterday Mr. Entwistle refuted what he called superficial "discussion, conjecture and analysis" of tax losses, saying the bigger picture shows gains for government.
"It's not proper for us to tell people, obviously, what opinions to hold, but I do think this particular development bears further analysis."
For instance, Mr. Entwistle suggested, Ottawa and the provinces stand to reap hundreds of millions in capital gains tax revenue from Telus's conversion to a trust, assuming its shares each incur an average $40 in capital gains.
"And the last time I checked, capital gains in Canada were still taxed," Mr. Entwistle said. "Take that capital gain per share and juxtapose it against the fact we have 344 million shares outstanding. That's a nice revenue flow to the government."
He also pointed out that Telus would be boosting distributions for each income trust unit to levels that far exceed dividends a share -- producing a much richer payout for investors that would then be taxed by government.
"What tax base would you rather have? The current dividend flow at Telus, which is $1.10 per share per annum or the $4 we're proposing under the cash distribution of an income trust. I think the latter is a much more attractive tax base than the former," he said.
He suggested Telus wouldn't have come under as much scrutiny if it had simply purchased an asset with "tax loss carry-forwards" that allowed the company to cut its corporate tax bill much as the income structure would. "I think if we had done that, there wouldn't have been a peep out of anyone."
The Telus CEO said he expects Ottawa will approve its conversion to a trust because federal officials will appreciate the benefits.
He also offered the federal telecom regulator some harsh advice, telling the Canadian Radio-television and Telecommunications Commission to rely more on market forces and to intervene in the business world only where absolutely necessary.
Mr. Entwistle said the CRTC should usher in a new era of minimal regulations and take part in an overhaul of government policy.
He also said Canada needs to relax its copyright, broadcasting and advertising laws to bring them in line with the digital world, and later told reporters that Telus would make more capital investments if Canada had less regulation.
© The Globe and Mail
