Canada: Income Trust Decision-Making Checklist - June, 2009

Alternatives for an Income Trust to Consider:

  • Conversion to a corporation now, later or not at all
  • Sale, merger, MBO or spin-out
  • Conversion to a U.S. master limited partnership
  • Restructuring to improve tax efficiency without conversion

Determining whether to convert to a corporation or pursue another alternative is complex. In assessing the merits and timing of such a decision, management and trustees of an income trust must consider a number of factors, particularly strategic, tax, financial, market and legal considerations. Here are some key questions to ask in making a decision as to the best alternative:


  • What is the income trust's business strategy? Does it want to grow through acquisitions or organically?
  • Is the income trust encountering liquidity problems, making a sale more attractive?
  • Does the income trust want the ability to issue equity securities as consideration for an acquisition?
  • Will conversion permit more tax-efficient acquisitions?
  • What is the level of foreign investment? Are increasing foreign investors putting at risk the income trust's favourable status as a "mutual fund trust"?
  • Will conversion make the income trust a more likely take-over target?


  • How much is the value of continuing the tax-free holiday on distributions until the end of 2010?
  • Will a reduction in distributions reduce the benefit of the tax-free holiday?
  • Will the income trust's forecast growth exceed the "normal growth" guidelines?
  • What will be the tax treatment of the income trust and subsidiary entities after 2010? Will conversion result in an acquisition of control of corporate subsidiary entities?
  • What will be the tax implications of conversion for unitholders (residents, non-residents and tax exempts) and holders of options and retained interests?
  • What will be the tax implications of conversion for holders of subordinated debt? Has the debt declined in value since issuance, which may give rise to debt forgiveness issues?
  • Does the income trust have other bases (e.g., tax depreciation, tax pools, tax losses, resource expenses and undeducted financing expenses) on which to reduce taxable income if it converts?
  • Can the income trust return capital rather than distribute income (e.g., through the use of resource expenses) thereby avoiding the tax on distributions?
  • Can the income trust implement other tax planning to reduce taxable income (e.g., by leveraging the business or effecting a conversion with a corporation with tax losses)?
  • To what extent does the income trust have foreign source income (e.g., foreign oil and gas properties)?


  • What is the income trust's expected financial performance? Does it expect to continue or vary future distributions?
  • Will the income trust need to reduce distributions to fund acquisitions, capital expenditures or operating costs?
  • Will the cost of a conversion have a significant impact on cash flow?
  • If the income trust converts, to what extent will after-tax income of the new corporation be less than current distributable income?
  • What will be the new corporation's dividend policy? How will this affect market value?


  • How does the income trust's trading price compare to other income trusts or corporations in similar industries or with similar market capitalization? Will there continue to be investor demand for units?
  • What factors, if any, determine the unit valuation other than income distribution levels?
  • How will conversion or announcement of conversion impact the trading price? Will this impact the exchange rate for outstanding convertible bonds of the income trust?
  • What is the income trust's investor base? Will reduction or suspension of distributions or announcement of conversion result in significant churn in the units? Could this make the income trust a more likely take-over target?
  • Does the income trust require capital for acquisitions, capital expenditures or operating costs? Will the income trust be able to access capital?
  • What will be the income trust's cost of capital compared to that of a dividend-paying corporation?
  • Would the ability to access foreign capital markets improve the availability of capital, reduce the cost of capital or improve liquidity?
  • Does the income trust have publicly-traded debt? What modifications will be required to accommodate the conversion and at what price (both cost and risk of approval)?
  • Is the market capitalization of the income trust sufficient to warrant it continuing to bear the cost and obligations of being a listed, reporting issuer? Is there sufficient liquidity in the units?


  • Will conversion trigger "change of control" provisions (e.g., such as in credit facilities, publicly-traded debt and compensation arrangements)?
  • Are the financial entitlements of holders of retained interests subordinated to unitholders? How will conversion of retained interests affect the financial interests of existing unitholders?
  • Do holders of retained interests have voting or veto rights which will impact structure and approval?
  • Are there management contracts with founders or sponsors? How will they be impacted by conversion or acquisition?
  • What rights of a holder of a retained interest should continue after conversion (e.g., special voting or veto rights, rights to nominate directors and other rights embedded in an existing shareholder agreement between the holder of the retained interest and the income trust in respect of ownership of the operating subsidiary)?
  • What level of approval is required by unitholders? Will "majority of minority" approval be required? Will debtholder approval be required?
  • Do market conditions or other circumstances mean unitholders are likely to oppose conversion or exercise dissent rights?
  • Are there perceived or potential conflicts on the board of trustees, making a special committee of independent directors appropriate?

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.