What Is an Income Trust?
An income trust is a legal and financial structure that allows a business or group of assets to be held in trust and distribute income directly to unitholders. These structures were especially popular in Canada before 2011 because they allowed businesses to avoid corporate income tax.
Income trusts were commonly used in sectors such as energy, real estate, and business operations that generated stable cash flow.
Why Income Trusts Became Popular
1. Tax Efficiency
Before 2011, income trusts avoided corporate tax by distributing most of their income directly to unitholders, who then paid personal tax instead.
2. High, Stable Distributions
Investors were attracted to the steady monthly or quarterly payouts, making income trusts popular among retirees and income‑focused investors.
3. Business Flexibility
Companies could convert to trust structures to improve cash flow and attract investors.
The 2011 Tax Changes
In 2006, the Canadian government announced new rules (often called the “SIFT rules”) that eliminated the tax advantages of income trusts. By 2011, most income trusts were required to convert back into corporations or adopt new structures.
As a result, income trusts are far less common today, though some sectors (such as real estate investment trusts, or REITs) remain exempt and continue to operate.
Types of Income Trusts
Business Income Trusts
Held operating companies and distributed business profits to unitholders.
Energy Trusts
Held oil, gas, and energy assets; popular for their high distributions.
Real Estate Investment Trusts (REITs)
Still widely used today. REITs hold income‑producing real estate and remain exempt from many SIFT rules.
Are Income Trusts Still Relevant?
While traditional income trusts have mostly disappeared, REITs and certain flow‑through structures continue to be important in Canadian investing.
The core idea—passing income directly to investors—remains attractive, even if the original tax advantages are gone.