Toronto stocks plunged Wednesday, as the country’s senior market reacted to the unexpected announcement that the federal government intends to begin taxing income trusts.

The S&P/TSX composite index fell 294.20. or 2.38%, to 12,050.39 as investors ran away from the income trust sector as well as those companies that had expressed an intention to convert to an income trust.

Nine of the 10 TSX main sub-groups were lower on the session, with just financials, up 0.17%, escaping the downward trend.

The TSX benchmark index also set a new record for number of trades, 614,188, compared to the previous record of 477,674 set in June. Volume on the day was just under 481 million shares.

The government said it would impose a distribution tax on payouts by income trusts, at an equal rate to those of corporations. Distributions would be taxed in the hands of investors at the same rate as dividends.

The telecommunications sector fell 8.28%. Shares in BCE Inc., which had previously announced an intention to convert, but is now reconsidering, fell $3.60, or 11.36%, to $28.10.

Telus Corp., another income trust conversion hopeful, lost $8.78, or 13.52%, to $56.15. Meanwhile, Rogers Communications Inc., which had decided against the income trust route, gained 91¢, or 1.35%, to $68.10.

The energy sector, which includes a number of income-trust companies, fell 5.10%.

Pengrowth Energy Trust lost $2.63, or 12.01%, to $19.27.

Light, sweet crude for December delivery closed down 2¢ at US$58.71a barrel on the New York Mercantile Exchange.

Though the materials index fell 0.61%, the gold sub-sector posted a gain of 0.99% on climbing bullion prices.

Gold futures shot up $12.50 at $619.30 an ounce on the Nymex, continuing a recent run in the price of bullion.

Barrick Gold Corp. gained 45¢, or 1.29%, to $35.20.

Among the financials sector, CIBC posted a gain of $1.36, or 1.55%, to $88.96.

CI Financial which converted to an income trust earlier this year plunged 18%.

The S&P TSX Venture Exchange gained 8.61, or 0.33%, to 2,585.25.

The Canadian dollar closed 0.82 of a cent lower at US88.22 cents.

In New York, markets dropped on disappointing corporate earnings and economic news.

The Dow Jones industrial average lost 49.71 points to 12,031.02, the Nasdaq composite index sank 32.36 points to 2,334.35 while the S&P 500 moved lower by 10.13 points to 1,367.81.