Should I trust an Income Trust?

Income Trusts appear to give very high yields without risking my capital. Are these good investments?

Q. Recently, I inherited several thousand dollars. Income Trusts appear to give very high yields without risking my capital. Are these good investments? — Richard

A. Equity investors in the past 10 years have received generous returns, that is until fall of 2008. Since then, many have reduced, repositioned or completely abandoned the stock market. Memorize this: “Investing is risky.” If you do not have the stomach for any risk, get out of the market.

Income Trusts (Income Funds) were created for investors to receive distributions on a tax-efficient basis. There are four main types:

• Business Trusts

• REITs

• Utility Trusts and

• Resource Trusts

Yields vary from five to over 20 per cent. Of course, the greater the yield, the greater the risk.

In 2006, Finance Minister Jim Flaherty announced all Income Trusts (except Real Estate Investment Trusts), starting in 2011, will be subject to corporate tax. It evens the playing field between taxed corporations and non-taxed Income Trusts. As a result, our government coffers get filled and investors receive less.

– Henry Choo Chong, CGA, can be reached at choochonghcga@yahoo.ca and 416-485-5225.

 
 
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