Canada's Liberals get trust plan election-ready

OTTAWA, Sept 4 (Reuters) - Canada's opposition Liberals aim to refine their proposal on income trust taxes so they can change the government's policy if they win the next election, which could come as early as this fall, legislators said on Tuesday.

In response to a highly controversial move by Finance Minister Jim Flaherty to tax the investment vehicles as of 2011, the Liberals came forward with a counter-proposal last February.

Their scheme would lower the tax to 10 percent from 31.5 percent and make it refundable to Canadian residents, while putting a moratorium on the creation of new trusts.

"The aim is to have our policy developed and in budget-ready form by the time we have an election campaign," said John McCallum, the Liberals' finance spokesman.

Income trusts avoid most corporate taxes by distributing profits directly to investors. That loss of tax revenue as more and more corporations converted to trusts, is what prompted Flaherty to slap a tax on the sector last October.

The Liberals are keen to campaign on the issue and may have an opportunity soon. Prime Minister Stephen Harper suspended Parliament on Tuesday and reconvened a new session for Oct. 16, setting up his government for a confidence vote shortly after.

McCallum and Liberal House leader Ralph Goodale met with about 30 income trust executives and tax experts in Calgary on Tuesday to get their views on other details of proposed legislation on income trusts.

McCallum said consultations would also be held with investors and others as the Liberals try to define which companies might be eligible to convert to trusts in the future.

"Our consultation is to ask the experts how we handle new conversions to income trusts in such a way that we gain on the productivity dimension but avoid conversions that are purely motivated by tax," said McCallum.