What Are They?

Income Funds, also known as income trusts, are legal and efficient business structures that are established and operate under all applicable federal and provincial laws. They have the same accountability and transparency mechanisms as traditional corporate structures and are subject to regulation by both the TSX and Canadian securities regulators. Income Funds are no different than other investments such as stocks and bonds.

Today, more than 247 Income Funds are listed on the Toronto Stock Exchange and the TSX Venture Exchange. They now represent 10 per cent of the market value of the TSX, or an estimated $200 billion in total market capitalization.

Businesses within an increasingly wide spectrum of Canadian industry sectors operate as Income Funds, including energy, real estate, technology, media and communications, food and beverage, and retail. Many of these are businesses Canadians know well, including Enbridge, Yellow Pages, The Brick, A&W Restaurants, and The Keg, just to name a few.

Depending on the sector in which a trust operates, Income Funds can be established as royalty trusts, business income trusts, or real estate investment trusts (REITs), each utilizing a slightly different form of legal business structure.

What is common to all Income Funds is a structure that encourages a large proportion of a business’ revenues to flow directly to investors in the form of regular - often monthly - payments. These payments are detailed in each Income Fund’s prospectus.

The vast majority of Income Funds are small to mid-sized businesses with capitalizations of under $1 billion. Without the income trust structure, access to capital would prohibitively expensive for many of these businesses.

While Income Funds do not pay corporate income tax on their profits, the individual investor or unit holder pays personal income tax on distribution payments received from Income Funds. They are the same as any other dividend in that distribution payments from an Income Fund are added to an investor’s other taxable income, taxed at the highest marginal rate, and taxes must be paid for the tax year in which the payment was received.