Remembering the Halloween Tax Massacre

On October 31st, 2006, then Minister Of Finance Jim Flaherty announced a scary surprise for Canadians. The taxation of income trusts would be brought in line with corporations, including the tax rate on distributions from income trusts shooting up to over 30 percent. An income trust describes a trust where at least 90% of the trust’s net cash flows are distributed to its unitholders. The announcement caused an immediate drop in value for these trusts and the value of unit holders’ interests in these trusts. Because of the date of this announcement, it is commonly known as the “Halloween Massacre”.



This alteration in the Canadian tax law, which attracted a lot of debates, was created to provide a solution against the anticipated tax revenue loss. At the time, there were approximately 250 trusts that were enlisted on the Toronto Stock Exchange, with several offering attracting results of up to 10%. This abrupt action by the government left investors in a shock and led to an instant decline of up to 12% in the trusts’ value.


Therefore, this resulted in the low-interest rates in the US and Canada in the following decade as investors clamored for more returns similar to the type that income trusts used to provide at some point of time.


Still, the income trusts were available in the form of Real Estate Investment Trusts (REITs). These entities are responsible for holding and maintaining income-producing real estate, such as shopping center's, office buildings, hotels.