Minister of Finance Ralph Goodale today announced that the Budget 2004 proposals to limit investment by pension funds in business income trusts will be suspended to allow for further consultations. The measures were originally proposed to take effect January 1, 2005.

“The Government’s overarching goal remains to ensure that funding for priorities such as health care and education is not jeopardized by the erosion of the corporate tax base,” said Goodale, in a news release. “But the concerns raised by pension funds and other interested parties deserve a closer look.”

The provisions, announced in the March 23 budget, prohibited pension funds from investing more than 1% of their assets in business trusts and limited their ownership to 5% of any single trust.

The restrictions did not apply to real estate investment trusts and resource royalty trusts.

The government took the action because it feared a substantial loss of revenue if pension funds became heavily involved in income trusts, which don’t pay corporate taxes.

It immediately sparked complaints by pension funds that they were being shut out of a growing market.

The funds mounted a strong lobby to persuade Goodale to reconsider the measure.

Goodale said officials will now consult with representatives of the pension fund industry, the investment industry, provincial governments and other interested parties. Details of the consultation process will be released soon. Following consultations, the Government will issue legislative proposals.

The Government will continue to monitor the development of the income trust market.