To respond appropriately to the proposed changes in the taxation of trusts, boards, CEOs and CFOs need to start developing plans now for the four-year transition period and beyond. In fact, year-end reporting requirements might require management to announce their initial plans within months.

These plans might include:

• Significant changes to existing business strategies and the business model
• Changes to the current strategies for cash distributions to unitholders
• Changes to the financing of the business 

Each trust will be under intense public scrutiny, and the markets will demand responses to the issues that will impact an entity's valuation. Specifically, boards, CEOs and CFOs of trusts should consider:

• Should we convert back to a corporation?
  • What is the right time?
  • What is the cost of converting?
  • What are the tax consequences of being private or unwinding trust structures?
• When is the right time to make cash distributions?
• Should we sell assets and distribute capital?
• How do we access additional capital?
• How do we evaluate M&A opportunities and threats?
• What are the implications to our business model?
• What are the strategies to minimize tax going forward?
• How do we address corporate governance challenges?
• How do we ensure compliance with new requirements for disclosure of financing and distribution strategies?
• What are the strategic implications of compliance with disclosure standards, and what is the best way to pre-empt negative consequences?
• How do we address asset impairment and other transitional issues?

Deloitte has developed a comprehensive five-step process to help management complete its due diligence and develop a strategic response in a timely and efficient manner.

1. Understand implications

• Unfunded obligations or growth strategies may prematurely trigger new tax
• Valuations and asset (goodwill) impairment issues
• Access to capital and impact on covenants, especially for troubled trusts
• Corporate tax planning and maintenance of payout ratios
• Management compensation and retention plans
• Corporate governance concerns, including conflicting interests among stakeholders
• Legislative uncertainty related to timing and costs associated with transition period

2. Identify strategic options for long-term structure

• Continue as a trust
• Liquidate assets and return capital to unitholders
• Sell entire trust to strategic or financial buyer
• Convert to alternate form (private or public corporation)
• Fix (carve-outs to qualify as a REIT/ possible hybrid structure/ break up asset base to maximize attractiveness to different investor markets)
• Other options 

3. Develop 4-year comprehensive valuation model

• Create a dynamic valuation model calibrated to identify the optimal timing to pursue value-maximizing alternatives
• Data required for modeling would include: cost to convert to alternate form, the cost of maintaining a trust structure versus an alternate form, and tax attributes/pools within the current structure

4. Develop revised strategy with trigger points for earlier exit from trust form

• Link capital needs with business growth strategy
• Understand possible trigger points (e.g. takeover activities, acquisition  opportunities, tax plays, economic downturn, interest rates)

5. Communication and reporting requirements

• Manage differing perspectives of investors, tax authorities and securities regulators
• Adopt CICA draft guidance for calculation and disclosure of distributable cash as a means to communicate go-forward strategy to investors and other stakeholders