What is ‘Canadian Income Trust’
A type of corporate structure as designated by the Canada Revenue Agency that operates as a profit-seeking corporation. This type of company pays out all earnings to unit holders before paying taxes, and is usually traded publicly on a securities exchange. In 2011 all Canadian income trusts lost their special corporate tax privileges, and were required to be converted into traditional corporate structures.
Explaining ‘Canadian Income Trust’
Canadian income trusts are a beneficial corporate structure alternative for firms due to lower tax liabilities. Before the profit is taxed, an income trust passes a high percentage of earnings to unit holders as cash distributions. If, once expenses have been covered, all of a firm’s remaining cash is paid out to unit holders, the firm is able to entirely avoid paying income tax. This was stopped by January of 2011 for income trusts with the exception of real estate investment trusts (REITs).
Further Reading
- Income trusts and shareholder taxation: getting it right – heinonline.org [PDF]
- The growth of income trusts in Canada and the economic consequences – heinonline.org [PDF]
- Trends in park tourism: Economics, finance and management – www.tandfonline.com [PDF]
- Competition and contestability in Canada's financial system: Empirical results – www.jstor.org [PDF]
- Canadian business trusts: a new organizational structure – onlinelibrary.wiley.com [PDF]
- Tax Policy, Capital Structure and Income Trusts – heinonline.org [PDF]
- Changes to income trust taxation in Canada: investor reaction and dividend clientele theory – onlinelibrary.wiley.com [PDF]
