In the past two years, the income trust has developed into an extremely widespread and versatile vehicle for acquiring and repackaging an increasingly diverse range of businesses in an effort to maximize value. A widely cited statistic for 2002 is that almost 90% of Canadian initial public offerings in that year were made through income trusts, with roughly 45 businesses effectively being sold to the public through income trust offerings. As of early September, 2003, activity remained strong, with 17 equity offerings by new issuers and 12 follow-up equity offerings by existing issuers being announced or completed.
This Blakes Bulletin on Income Trusts describes some recent developments in the income trust area. As readers will note, the developments strongly suggest a growing maturity in the sector. Two broad themes are worthy of note in that regard. Firstly, as income trusts solidify their presence in the capital markets, regulatory and governmental authorities are considering the ramifications of the increased presence of income trusts and are either crafting policies directed specifically to income trusts or are expressly taking income trusts into account in drafting policies of broader application. Brendan Reay’s and Dallas Droppo’s article "Legislative Initiatives to Limit Liability of Trust Unitholders", Ken Pearce’s article "Proposed Ontario Securities Commission Policy on Income Trusts" and Jeff Lloyd’s article "Investor Confidence Rules Raise Issues for Income Trusts", describe some of these legislative and regulatory developments. In a somewhat similar vein, the Department of Finance (Canada) has also indicated it is performing a study of the income trust market, although there are no signs of any policy initiatives in that regard.
Secondly, recent income trust offerings continue to demonstrate the importance of the United States both as a source of income trust businesses and as a target market of investors in income trusts. Accommodating U.S. businesses and investors has in many cases forced income trust advisors to reconsider the essential features of the income trust vehicle, with a view to reproducing those features in a modified vehicle which is suitable for a cross-border offering. In that regard, Doug Richardson’s article "Restrictions on Non-Resident Ownership" considers ways in which income trusts can be adapted, in appropriate cases, so as to eliminate or at least minimize the impact of restrictions on non-resident ownership that might otherwise apply under Canadian tax laws, and Pat Finnerty’s article "Monitoring Non-Resident Ownership" describes some of the difficulties involved in monitoring non-resident ownership when those restrictions cannot be avoided. Ron Richler’s article "Corporate Income Funds" describes the use of a corporate issuing vehicle (rather than a trust) to achieve the tax efficiencies normally associated with trusts, in a cross-border context. Similarly, the article "Spinning a U.S. Business into a Canadian Income Trust" by Leslie Morgan describes other cross-border structures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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