ONLINE EXCLUSIVE: Income trust change affects all truckers, Mullen says

CALGARY — If you own a truck company, it’s worth far less than it was only three weeks ago. At least that’s the considered opinion of Murray Mullen, chairman of the Mullen Group Income Fund.

In a conference call with analysts in which Mullen was reporting his company’s third-quarter results, he said the actions taken by the federal government to change legislation governing the taxation of income trusts affects the valuations of not only the income trusts but also the worth of the companies that the trusts might be considering purchasing.

He cited three of the biggest trucking income trusts — Mullen, Contrans and Transforce — which have been growing by acquisition. “To the extent that our valuations are contracted, the entrepreneurs, the mom-and-pop operations that are trying to sell to us are going to see contraction as well,” he said.

Murray Mullen says acquisitions for income trusts might be
more of a gamble under new taxation rules from Ottawa

Basically the new rules state that starting in 2011, income trusts will be taxed more like corporations. Income trusts don’t pay corporate income tax but distribute cash to unit holders who pay income tax on the distributions.
The Tories have stated that they plan to cut corporate taxes by the year 2011.

Mullen said that the timing couldn’t have been worse for the oil exploration business. Referring to petroleum interests that were operating as income trusts, he said the new rules are restricting those companies’ ability to get capital to take advantage of drilling in the first quarter of the new year, which, he says, “is kind of the main time to go drilling.”

Mullen did say, though, that his company will continue with acquisitions. “We’ll also look at companies with good market shares; good people, good business and good clientele.

However, he added, “given the federal legislation, we are more cautious than we otherwise might be.”

Meanwhile, Terry Owen, the CEO of bulk hauler Trimac, another income trust, says he was “absolutely flabbergasted” by the actions taken by the federal government and said that they were based on “erroneous understanding of income trusts and their positive contribution to the Canadian economy.”

He said the announcement was particularly shocking because the government is apparently in a “huge financial surplus position.”

“The result is the vaporization of $30 billion worth of savings, in some cases life savings, of Canadians from all walks of life.”

Owen says he and other members of the Canadian Association of Income Funds are attempting to persuade federal legislators that they should revisit the decision that was announced October 31.