"What are Canadian Income Trusts"
Don't envy my great retirement -- Join the fun!
Click to discover my secret to ever-growing income from investments for life -- whether the stock market goes up or down
Canadian income trusts as known today were created by The Income Tax Act of 1985. This law authorized businesses to organize themselves as trusts. They would not have to pay taxes so long as they paid out nearly all of their net earnings to the trust holders (also called unit holders).
The first tax ruling allowing this structure came in December 1985 to the EnerPlus Resources Fund. However, until the dot com crash (which shook the Canada's financial world -- Bay Street -- just as hard as it did Wall Street), nobody paid much attention to this law. The vast majority were CanRoys - Real Estate Investment Trusts and royalty trusts.
The only similar structure authorized by law in the United States are Real Estate Investment Trusts (REITs). They too are free of taxes so long as they distribute at least 90% of net earnings to shareholders. However, in the U.S. this is available only to real estate companies. REITs are also available in Canada under this income trust law, and are also good high income investments.
The closest equivalent in the United States to other types of Canadian income funds are master limited partnerships.
A Trust is the Holding of Property for Someone Else - so are Canadian Income Trusts
A business converts into an income trust by becoming the settlor of the trust -- it transfers ownership of its assets to the trust. The trust fund is the trustee. That is, it manages the assets on behalf of the beneficiary. The beneficiaries are the investors who've purchased shares in the trust.
An income trust is a business that holds its assets to produce income to the owners -- unit holders. Ownership interest in Canadian income funds trades on stock exchanges just like shares of stock, but they're called trust units. Dividends are paid to the unitholders on a monthly or quarterly basis.
In 1997 the Labrador Iron Ore Royalty Trust was created by Noracen Energy Resources Ltd. A few other income trusts came out during that period, but they did not catch on because of the dot com stock market boom. Once that crashed in March 2000, Bay Street needed new types of financial products to sell to Canadian investors.
They figured out that smart investors would now choose income over capital gains (which can vanish almost overnight), and so began to push Canadian income and royalty trusts.
Often these were businesses that generate a lot of cash for investors, which then must be paid out to unitholders per Canadian law. Of course, do do this, the business must have plenty of cash from profits to begin with.
By 2003, eight out of every ten dollars raised by Canadian Initial Public Offerings went to energy trusts. Over 175 trusts trade on the Toronto Stock Exchange
The larger and more well-known royalty funds trade on U.S. as well as Canadian exchanges.
Now download The Death of Capital Gains Investing, your first step toward experiencing for yourself the joy of securing your retirement through income investing!
It's easy. Just enter your first name and email address into the form below.
(NOTE: After you click the button, you'll be taken to a thank you page with the link to download your free report.)
Copyright 2007-2017 by Gold Egg Investing LLC. All rights reserved.