From the dictionary, Trust is something, such as jewellery, money, land, or any other property, committed into the care of another. The ownershiop of property and the benefit of that ownership is separated.
In its simplest form, there are three parties involoved in a trust, i.e. settlor, trustee, and the beneficiary. The settlor is an individual or legal entity who owns the property and would like to transfer it to a trust. The trustee is an individual or legal entity who owns the trust property until the trust relationship is ended. Finally, the beneficiary is the party who will be getting the benefits from the trust property.
Simply put, income trust is a trust created by companies or business for a variety reasons, in the form of trust.
Income trust, also called income funds, are trusts generally structured to own debt and equity of an underlying entity which carries on an active business, or a royalty in revenues generated by the assets thereof.
direct structure
limitedpartnership
1985 - Calgarian Marcel Tremblay secures a federal tax ruling in favour of the creation of a public income trust. He creates an energy trust that eventually becomes the mammoth Enerplus Resources Fund.
1994 - Quebec provides limited liability protection to income trust investors, ensuring they can't be held responsible for the debts of income trusts.
1995 - Income trusts reacha totalmarket capitalization of $1.3 billion. (Dec.)
2000 - The dot-com stok implosion begins and Canadian investors launch their great migration to the cash distributions of income trusts.
- Total market capitalization ofthe trust sector reaches $18 billion. (Dec.)
2001 - Kenneth Lay resigns as chariman of Enron, amid charges of a multi-billion-dollar fraud. Later in the year Enron files for bankruptcy. Over the next three years, various former Enron executives are indicted, convicted and sentenced, but not Lay. The fallout from Enron convinces lots of investors to buy trusts.
2002 - WorldCom files for bankruptcy as details emerges of an $11billion accoutnign fraud. More investors flee to trusts.
2003 - Market capitalization of all trusts in Canada tops $45 billion. For the year, income trusts accoun for more than 80% of the value of all initial public offerings.
2004 -Trusts surpass total market capitalization of $75 billion. (Mar.)
- Alberta extends limited liability protection to income trusts, making clear that investors are not liable for the debts of trusts in which they hold units. the federal Finance Department suspends budget provisions imiting pension fund participation in the income trst sector.
- Former Enron chariman Kenneth Lay is indicted for securities fraud. (July 08)
- Trusts distribute a total $8.9 billion in cash to investors for the year. (Dec.)
- Ontario passes legislation extending limited liability protection to trusts. (Dec.)
- Total market capitalization of the trust sector tops $118 billion. (Dec.)
2005 - Standard & Poor's says it will develp plans for the inclusion of income trusts in the S&P/TSX Composite index. (Jan. 26)
- The federalbudget announcesOttawa will launch a public consultation process on tax issues related to income trusts and limited partnerships. The budget also repeals the foreign ownership rule, which restricted RRSP and pension fund investment in limited partnerships that are treated as foreign property for tax purposes. (Feb.)
- Former WorldCom CEO Bernard Ebbers is found guilty of securities fraud and filing false statements. (March)
- Manitoba provides limited liability protection to trust investors. (June)
- Claims settlements paid by banks in Canada and the United States to Enron investors surpass $7 billion US. Payments settle class-action lawsuits alleging banks helped Enron disguise part of its massive debts as investments. (Aug.)
- Some 220 income trusts reach a market capitalization of $175 billion. (Sept.)
- The federal Finance Department releases its discussion paper on Income Trusts, entitled tax and other issues related to publicly listed flow-through entities. The paper asks whether ta treatment of trusts is fair, if trusts support economic growth and whether trusts promote tax "leakage." (Sept.08)
- Canadian bank CEOs say they might consider spinning off parts of their operations into trusts. (Sept.)
- Federal Finance Minister Ralph Goodale declares a freeze on advance tax rulings for corporations seeking conversions to the trust format. Within a week, total market capitalization of the income trust sector has declined to $166 billion. (Sept.)
- Precision Drilling CanWest Media Works and others say they will proceed with trust conversion plans, despite Ottawa's freeze on tax tulings. (Sept.)
- Despite the federal freeze on tax rulings, Standard & Poor's says it will proceed with plans for inclusion of trusts in the S&P/TSX Compostie Index. (Oct.11)
- Ottawa tells Bay Street players to submit ideas on income trusts as quickly as possible so it can move on potential tax reforms as early asJanuary. (Nov. 02)
- Federal Finance Minister Ralph Goodale backs off on plans to fiddle with income trusts, after a barrage of investor protest. (Nov. 23)
- The S&P/TSX Composite Index will include qualifying large income trusts at half of full market capitalization as the first major step toward full membership in the index. The half weighting allows time for investment managers to adjust their portfolios. (Dec.)
- Trusts distribute $19 billion in cash to investors for the year. (Dec.)
2006 - About 230 income trusts reach a market capitalization of $190 billion. (Feb.)
- Selected large income trusts are included in the S&P/TSX Composite at "full float".(Mar. 17)
- Oct.31 2006, Finance Minister Jim Flaherty announced the surprise decision to tax income trust in 4 years. Sector down.