"Reasons Why You Should Consider Investing in Canadian Business Income Trusts"
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1. High yields
This is certainly the number one consideration. Because Canada income trusts don't pay taxes and are required to pay out substantially all of their post-operations net profits, they pay out a lot more than most corporations, which have to pay taxes and which rarely pay out over 50% to shareholders.
Many well run royalty trusts have been increasing the amount of their dividends for years now, and many make monthly payments -- in contrast to corporate dividends, which are usually paid quarterly. Therefore, it's possible to invest enough money in well-run business trusts that pay steadily increasing dividends on a monthly basis . . . and live well as a retiree on that income.
If Canadian resources trusts didn't pay out so much money, nobody but Canadians would know about them.
2. For people who live outside Canada, investing in Canadian income trusts allows them to hedge their currency spending power
For example, after sinking against the US dollar for 30 years, the Canadian dollar (the loonie) is now rising fast against the US dollar. In part because the US dollar is weakening against all currencies, and in part because Canada's resources and commodities are rising in price.
Even if your income is in yen, the euro or other currencies that are now rising against the US dollar, receiving some income in Canadian dollars helps hedge your spending power risk.
3. As a hedge against rising energy costs
We are all paying more money because of the rising price of oil. Even if you walk or ride a bike, thanks to higher energy costs, you're paying higher prices for the food you eat and for other products you buy.
Yet, as energy costs go up, so will your monthly income from oil and gas royalty trusts.
4. Because the income fund is not taxed, there is no double taxation
Corporations must pay taxes on their profits. They pay dividends out of what's left -- and then the shareholders receiving the dividend checks must pay individual taxes.
This is a grossly unfair situation, but because of various political considerations, will remain in effect for the foreseeable future.
Canadian trust unit holders do pay taxes on the dividends they receive, but since the trust doesn't pay any taxes, there is no double taxation of the same business profits.
5. Canadian Income Funds Qualify for Registered Retirement Savings Plans
Therefore, Canadian gas trusts qualify for RRSPs, Registered Retirement Income Funds and other Canadian tax-deferred income plans.
This applies only to Canadians -- if you're not Canadian, you must check your own national laws to see whether or not you can place Canadian CanRoys in your country's tax-deferred retirement plans.
6. High potential price increases
On the whole, the price of Canadian income royalty funds increased 38.2% in 2005.
In a financial world where investors are increasingly looking for more income, and in a world where the price of oil and natural gas are rising fast, these funds are attracting a lot of attention, and therefore their prices are going up, and may well continue to go up.
This is an unknown, however. After the Halloween Massacre of 2006 when the Canadian government announced it planned to begin taxing income trusts in 2011, their prices plunged.
What are the risks of Canadian income trusts
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