Canadian Income Trusts at Risk

Canada’s energy trust sector has been left “in limbo”, with firms not sure if they are allowed to make acquisitions under the country’s plans to make trusts pay corporate tax, according to a income trust spokesman.

The uncertainty for energy trusts also means that some firms have already become ripe acquisition targets, said George Kesteven, president of the Canadian Association of Income Funds.

“There’s already private equity funds in Calgary, flush with cash, shopping for some of these companies,” he told Dow Jones Newswires in an interview.

An income trust is a Canadian investment vehicle that has little taxable income at the corporate level and pays out most of its income to unit holders in monthly distributions. Nearly 60% of Canada’s income trust sector is comprised of energy trusts, which typically shy away from expensive exploration activities and focus their resources on squeezing every last drop of oil and gas out of mature properties. Trusts produce around 20% of Canada’s daily crude output.

Dow Jones Newswires