what was the halloween massacre 
the halloween massacre refers to a 2006 decision by the canadian government to tax all income trusts domiciled in the country on halloween oct 31 2006 canada s then minister of finance jim flaherty announced that all income trusts would be taxed at a rate of over 30 on taxable income just like corporations the decision caused unitholder value to decrease dramatically virtually overnight 1 income trusts were popular among canadian investors because of their favorable tax treatment understanding the halloween massacrecanadian income tax laws allowed income trusts to make distributions to unitholders on a pre tax basis this made them a favorable investment option for a lot of canadian investors in the early 2000s but that changed on oct 31 2006 when then finance minister jim flaherty announced changes to end the tax benefits for income trusts 2the change in canadian tax law to tax income trusts the same as corporations which was debated after the fact was made to remedy a perceived loss of tax revenue at the time there were about 250 trusts listed on the toronto stock exchange tsx with a market value of over 200 billion 3 many of these investments offered unitholders yields as high as 10 so it s no surprise that the government s move shocked investors leading to an immediate 12 drop in the value of the trusts 2in the years since the halloween massacre interest rates were low in canada and the united states as investors clamored for more yields like the kind that income trusts once provided as of 2023 income trusts were still available many of them real estate investment trusts reits 4these entities hold and maintain income producing real estate including office buildings shopping centers and hotels that canada still offers special tax treatment when income flows through to unitholders they don t pay much if any corporate tax and most of the distributions are taxed as ordinary income 5income trusts operating in the energy sector lost as much as 17 85 in value within the 10 days following the canadian government s announcement on oct 31 2006 6special considerationsa canadian income trust was an investment fund holding income producing assets and distributing payments to unitholders or shareholders on a regular basis distributions were usually made on a quarterly or monthly basis a canadian income trust was required to distribute a minimum of 90 of its net cash flows 7 both investors and trusts benefitted from the tax advantages of income trusts where u s investors who invest in canadian investments including reits should keep in mind that payments from these trusts are subject to a canadian withholding tax of 15 8 in some cases it s possible to claim a foreign tax credit depending on where the shares are held 9consequences of the halloween massacrecanada s change to the tax treatment of income trusts angered many investors that s because these investments earned higher yields when compared to other vehicles such as guaranteed investment certificates gics their value dropped significantly to the tune of 12 immediately after the announcement was made 2 an american couple even filed a nafta claim citing 6 5 million plus costs 1011the tsx lost 294 points when the government made the announcement as many investors pulled their money out of income trusts the tsx made a recovery shortly afterward recovering nearly all of the losses it experienced on halloween the rebound was largely due to investors putting their money into dividend paying stocks trusts had five years to convert to corporations many moved forward with the conversion while others became real estate investment trusts reits by the 2011 deadline 12 those that didn t make the move either went private or were acquired by other entities 2the canadian reit market was hit hard in the wake of the covid 19 pandemic the second quarter of 2020 brought the largest ever year over year yoy decline for quarterly earnings at minus 13 according to carolyn blair managing director of rbc capital markets real estate group as of the end of september 2020 canadian reits underperformed with a negative 20 return over the preceding 12 months the pandemic s effect on real estate including tenant insolvency empty storefronts reduced retail business closed shops restaurants and more was to blame 1314canadian reits were poised for recovery after the pandemic thanks to lower interest rates and higher operational efficiency investment activity and property demand have slowed down because of the rising rate environment revenue for the sector is expected to drop by 5 6 to 8 2 billion by 2023 15