Income trusts trade like stocks on the stock exchange. Your costs may include:
- Sales fees. These are the commissions you pay to buy and sell units of an income trust.
- Management fees. These fees are similar to the Management Expense Ratio (MER) of a mutual fund. They add an extra layer of cost to your investment.
How do taxes on income trusts work?
Income trusts were first set up so that the underlying company did not pay corporate tax. It passed most or all of its taxable income on to investors as distributions.
But on October 31, 2006, the Department of Finance announced changes to the tax rules for income trusts that are now law. Income trusts are now taxed the same as Canadian corporations. The goal: to remove the tax advantages that trusts had over corporations in the past.
The changes will apply to new income trusts that start up after October 31, 2006. For income trusts formed before that date, the changes will apply in the 2011 tax year. The one big exception: certain Real Estate Investment Trusts (REITs).
Tip: Unless you invest through a Registered Retirement Savings Plan (RRSP), you'll pay tax on any income you get from an income trust at the same rate as your job or other income.
Remember: Taxes on income trusts have changed
Make sure you understand how this will affect what you make. Also check that you get good value from the fees you pay.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.