What is a Canadian Tax Return Form

Income Shares Cash distributions of Canadian Income Trusts under the T3 Tax Form

   

Income trusts are structured as non-incorporated trust investment assets and are not mutual fund trusts. Trusts are treated as a tax-transparent mass of assets ("flow-through" entity), i.e. the trust itself is not a taxable person, but the tax result of the securities held by the trust is directly attributed to the shareholders (unitholders). The income categories resulting from the securities held must therefore be allocated proportionally to the shareholders (allocation). The various categories of income such as dividends, interest, capital gains, non-taxable income (repayment of shareholder loans, depreciation) are reported by the trust on the T3 form as a declaratory income tax return to the Canadian Customs & Revenue Agency (Statement of Trust Income Allocations and Designations) and directly to the shareholders Shareholders who hold the shares in the name of a giro depository must request this tax return from the trust in order to be able to prepare the income statement. The broker only provides evidence of the payments received and the withholding tax withheld thereon delivered.

 

  • Income category 21 This is all realized capital gains during the year
  • Income Category 23 Amount of Canadian dividends allocated
  • Income Category 25 Amount of foreign (US) non-business income during the year
  • Income category 26 Amount of interest income, which is referred to as other income.
  • Not stb income
  • Non-reportable depreciation + repayment

 

Selection of Income Trusts Income shares and after-tax returns Price basis 06/21/04

 

SocialBar knockinterestDividendsCapital withdrawalRevenue shareNachstRend *

Pembina

1.05

0.970

----

0.079

92.45%

5.74%

Olympia & York

1.07

0.185

--

0.8847

17.34%

8.74%

SuperiorPlus

2.28

1.5021

0.6807

0.0972

95.73%

5.72%

Arctic Glacier

1.07

0.5731

--

0.4973

53.50%

7.31%

RIOCAN

1.14

0.5785

--

0.5460

50.75%

5.72%

CalpinePower

0.9785

0.0156

--

0.9264

  5.33%

9.32%

Newalta Inc

0.96

0.9470

--

0.0130

98.64%

3.08%

Davis & Henders

1.3599

0.9437

0.2651

0.1509

88.90%

5.04%

BFI Canada

1.23

1.0942

-

0.1357

88.96%

4.19%

Bell Nordiq

0.9550

0.8184

--

0.1365

85.70%

5.00%

Boralex Power

0.8748

0.1749

--

0.6998

  0.19%

8.12%

Chemtrade

1.76

0.9013

0.7056

0.153

91.30%

5.88%

GrLakesHydro

1.20

0.5940

--

0.606

49.50%

5.85%

Parkland

1.68

1.5504

--

0.1296

92.28%

5.91%

Northwest

1.90

1.90

--

--

100.0%

4.54%

Boston pizza

1.08%

0.8083

--

0.2717

74.84%

6.17%

Noranda Inc

1.01

0.0505

--

0.9595

  5.00%

8.35%

Keyspan Facilit

1.09

--

0.6124

0.1956

56.18%

4.87%

HR REIT

1.23

0.4428

0.046

0.6343

48.18%

5.77%

Calloway REIT

1.15

0.5204

--

0.6304

45.22%

6.36%

PBB Glob Log

1.58

1.4852

0.0948

-----

100%

5.778%

 

* Note: an income tax rate of 40% is assumed.

 

It is noticeable that the newly traded income trusts have the highest tax-free capital repayment proportions for cash distribution. This is because the costs of the IPO can be written off in the first 4 years. Furthermore, the most capital-intensive trusts such as electricity funds and Pipelines have the largest share of depreciation. Income trusts should never be selected from a tax perspective only. However, it should be noted that in the event of realized capital losses, you can apply for a refund to the tax authorities for the withholding tax retained on the capital repayment shares in previous years Trust is made up of the cash distribution + the growth rate of the cash distribution (price gain). It should also be noted that high cash returns usually reflect a higher investment risk, a possible risk of a reduction in the cash distribution. A selection based on the amount of the cash distribution is therefore not much A selection based on the security of the cash distribution and the prospect of an increase in the cash distribution therefore makes more sense. A low cash yield can therefore also reflect a higher growth rate of the income trust.