Canadian Royalty Trusts

Looking for Canadian Royalty Trusts? Want to know about all the different types of Royalty Trusts available? Read our guide for more information on choosing the right Trust for you…

Canadian Royalty Trusts are also known as CanRoys. They are trust corporations involved in the production of oil and natural gas in Canada. Large oil and gas corporations in Canada switched to forming trusts when they realized that trust profits are not subject to corporate income taxes provided at least 90% of the profits are distributed to shareholders in the form of dividends. This dividend income from royalty trusts is then taxed on individuals as part of their income tax. By forming Royalty Trusts, a Canadian corporation effectively avoids being subject to the double taxation regime.

Canadian Royalty Trusts own the mineral rights to mines or oil and natural gas wells but do not perform the actual production work. A third party corporation undertakes the physical drilling and mining work. Royalty Trust shares are traded on the Toronto Stock Exchange but the Trust itself may be supervised by the Trust Department of a commercial bank.

Canadian Royalty Trusts are an ideal method for individuals to invest in the oil and gas industry but who do not have the funds to actually own oil wells or mines. The payout from the trust is typically high, at 10% to 15% annual returns. Investors find this investment tool attractive because Royalty Trusts normally own several different oil wells, fields and mines thereby offering investors a well diversified portfolio of shares in various properties.
New Legislative Impact On Royalty Trusts

Canadian Royalty Trusts may have their own employees, borrow money and buy properties. However, this is set to change in 2011 when Royalty Trusts in Canada will be taxed at the full corporation tax rate of 31.5% on their profits. The reserves of oil and natural gas that Royalty Trusts acquired as part of their properties compensated for the high dividend payout they made. With the increase in income taxes, the Trusts will not be able to maintain the annual returns investors have hitherto enjoyed as they must use funds to maintain production levels and drill new oil wells.

Canadian Royalty Tusts are typically entities that own oil and natural gas reserves with the physical operation of the oil wells and mines being run by a third corporation. The high dividend payout of Trusts is set to decline when new Canadian tax legislation comes into force in 2011.

 

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