DEFINITION of 'Canadian Income Trust'

A type of corporate structure as designated by the Canada Revenue Agency that operates as a profit-seeking corporation. This type of company pays out all earnings to unit holders before paying taxes, and is usually traded publicly on a securities exchange. In 2011 all Canadian income trusts lost their special corporate tax privileges, and were required to be converted into traditional corporate structures.

BREAKING DOWN 'Canadian Income Trust'

Canadian income trusts are a beneficial corporate structure alternative for firms due to lower tax liabilities. Before the profit is taxed, an income trust passes a high percentage of earnings to unit holders as cash distributions. 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. This was stopped by January of 2011 for income trusts with the exception of real estate investment trusts (REITs).

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  1. Can a corporation deduct dividend payments before its taxes are calculated?

    Corporations may not legally deduct the dividend payments before taxes, but there is another approach: a corporate structure ... Read Answer >>
  2. How are trust fund earnings taxed?

    Trust fund earnings that are distributed are paid by the beneficiary. The trust pays taxes on retained earnings and principal ... Read Answer >>
  3. Do beneficiaries of a trust pay taxes?

    Beneficiaries of a trust typically pay taxes on distributions from the trust's income, but not on distributions from the ... Read Answer >>
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