Canadian Income Trust

A qualified income trust as designated by the Canada Revenue Agency that operates as a profit-seeking corporation. This type of income trust, which pays out all earnings to unit holders before paying taxes, is usually traded publicly on a securities exchange. Canadian income trusts enjoy special corporate tax privileges.

Canadian income trusts have been gaining popularity since the beginning of 2004 as a beneficial corporate structure alternative for firms. The benefit of becoming a Canadian income trust is that the corporation, as it is currently structured, will pay little to no corporate income tax. This is because cash distributions are paid out to unit holders before income taxes are calculated. 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.