The Greenwood Centre
3200 Deziel Dr. Suite 210
Windsor, ON, N8W 5K8
Phone: (519) 974-6688
Toll Free: +1 866-973-4846
Fax: (519) 974-7192
An income trust is an entity created to pay out the cash flow generated by a business in the form of cash distributions to unitholders. Most income trusts are based on businesses that are stable, relatively mature, and have a generous and predictable cash flow. These traits allow much of the cash flow generated by the business to be distributed rather than reinvested. These regular cash distributions (usually monthly or quarterly) are what make income trusts so attractive to investors, especially those seeking income in their portfolios. Often, yields for income trusts can be much higher than for bonds or other fixed income investments.
Also attractive is the tax efficiency of income trusts. Income trusts do not pay corporate tax, thanks to a loophole in Canada's tax laws. Distributions from income trusts are taxed differently from dividends. Also, a portion of the distribution is often treated as a Return of Capital, and the taxes on this portion are therefore deferred. This deferral can reduce the unit holder's adjusted cost base and the amount of capital gains he or she pays when selling the units.
As with all investments, income trusts are not without risk. Although unlikely, the tax loophole could one day be eliminated. The distributions are not guaranteed and may be cut at any time. Even if distributions are maintained, the gains made from the distributions may be wiped out by a falling share price. And, not all income trusts are created equal. Make sure you understand the underlying business well before you invest.
Mutual funds are offered through Manulife Securities Investment Services Inc. Insurance products and services are offered through Seguin Financial Group Ltd. Seguin Financial Group is a trade name used for both mutual fund & Insurance business activities. Banking products and services are offered through referral.