Types of income trusts

Real estate investment trusts

Royalty/energy trusts

Business trusts

Business income trusts are individual companies that have converted some or all of their stock equity into an income trust capital structure for tax reasons. Business income trusts are used in many sectors, such as manufacturing, food distribution, and power generation and distribution. They are not investment trusts in the classic sense, since they represent a single company's assets and not a pool of investments.

Among business trusts, utility trusts that invest in or operate public utilities such as electricity distribution or telecommunications are sometimes put in a separate category as they are inherently less growth-focused. (InvestCom)

In the US, the business trust structure typically takes the form of publicly traded partnerships (PTPs) or master limited partnerships (MLPs), essentially limited partnerships (LPs) with units that trade on public securities exchanges. Those were very popular in the mid-1980s but are rare today. A more recent alternative called income depositary shares (IDS) has also failed to attract investor attention due to the trust activity being focused on the Canadian market.

The issue of economic efficiency of business trusts is controversial. On one hand, the distribution of income can force managers to exercise more discipline in investment decisions. On the other hand, the distribution can stunt the company's growth by preventing its expansion. If large numbers of growth-oriented businesses start converting to trusts purely for tax reasons, this could adversly impact the growth of the economy.

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