Income Trusts
A type of equity or a different asset
class?
What is an Income Trust?
An income trust can be thought of as higher
yield, lower duration equities, however, they
do have unique elements requiring
specialized analysis within an equity
mandate.
What Makes an Income Trust Unique?
Income trusts are structured to take
advantage of specific income tax provisions
that eliminate double taxation of corporate
profits.
If a trust is simply a conduit from the source of
cash flow to the beneficiary or trust unit holder,
the cash flow is not subject to income tax.
Types of Income Trusts
1. Energy-based Royalty trusts
2. Real estate investment trusts
3. Business trusts
Correlations of Value-Weighted Portfolios with TSX and Medium-Term Bond Returns
1996-2002
All income Business Energy-based
trusts trusts REITs royalty trusts
TSX 300 0.498 0.381 0.49 0.432
Bond Return 0.431 0.472 0.446 0.309
How Are Trusts Structured?
Sensitivity of Trusts to Economic
Variables
Benefits of Income Trusts
Unique Issues Facing Income Trusts
Government Position on Income Trusts
At the time of the Federal Budget in February
2004, the government announced that it
planned to prohibit investment in income
trusts by pension funds.
This position was renounced in June of 2004
after considerable public debate and political
pressure applied to the government by the
managed fund industry.
For Further Information
Halpern, Paul and Oyvind Norli, “Income Trusts: Old Wine in New
Bottles?” Canadian Investment Review.