Saturday, September 24, 2005
Investing in…. by Alfred Fraser
Investing in…. by Alfred Fraser
Income Trusts
Income Trusts have had a certain level of media interest in Canada recently. The current debate questions if individual businesses should be allowed to restructure their business in the form of an Income Trust. What does that tell an Investor? It tells an Investor that the best business brains out there see an advantage in becoming an Income Trust. It tells you the Consumer that the professional Business Strategists envy the phenomenal results Income Trusts have had in recent years. Now, their strategic advice to Big Business that they should restructure and become an Income Trust has become public information. The Media is leaking out inside information that normally, is kept top secret, far from the public eye. This is the knowledge that makes Rich People
…WEALTHY.
Revenue Canada's Interest:
Since Revenue Canada is interested, the Mutual Fund Companies must be interested too. CI mutual Funds was quickest to act and improve profits. They implemented this smart tax play by converting its business model into an Income Trust. Dynamic Mutual Funds, which manages several successful Income Trust Funds had their analysts review the latest news because Revenue Canada and the finance Ministry were interested. Dynamic shared their Analysis’ Report with me for my own professional development. The Report focused on possible government action to restrict the conversion on prominent Canadian businesses, including the stellar Royal Bank into an Income Trust. Canada Revenue Agency, CRA, is reviewing these new trends to protect its taxation base. The Finance Minister, Ralph Goodale, sees this trend as a potential loss of tax revenues. The conversion toan Income Trust by these prominent, Canadian businesses is also a play so they could pay less tax. The conclusion by Dynamic’s Business Consultant is that no drastic government activity will result. The most significant result they speculate could be the imposition of the Dividend Tax Credit Rules on Income derived from Income Trusts. And such legislation seems quite unlikely in the current political climate of a minority government.
Dividend Tax Credits:
To the Beginning Investor, I must explain what this speculation on possible changes in governent legislation means. This prediction is not bad news at all. In fact, Dividend Tax Credits rank as one of the best ways to receive income under Canadian Tax laws. Stated simply, Income you derive from Interest on a Savings account, for example, is very heavily taxed ....100%. By comparison, only 50% of Income derived from Capital Gains is reported and taxed. As for Dividend Income from Canadian Sources a complicated formula not only gives a tax deduction for the interest you paid as the cost of borrowed money. It also gives you a Tax Credit. The Dividend Tax Credit therefore reduces the Taxes you the Tax Payer would otherwise be required to pay. This is the best way to receive Income in Canada. The tax burden has least impact when you receive Dividend Income.
Once again, for newer Investors, we should note that this discussion stays entirely within the realm of Income. That is money going into someone’s Account… either you the investor or the Treasury at Canada Revenue Agency. Who gets that money is what the discussion (read fight) is all about! This is not a discussion of money being lost, of Business executives caught in wrongdoing. No…No/..No. These are the discussions of wealthy Business Tycoons. YOU WANT TO BE INCLUDED ON THIS STUFF.
Beneficiaries to a Trust:
Here is another point to note. The term “Income Trust” refers equally to the individual Business that takes on the structure of a Trust holding and managing assets for its Beneficiaries. So the Beneficiaries are the shareholders. They profit when the company does well or take their losses if not. The purpose of an Income Trust is to create and deliver a regular income stream to its Share Holders and Beneficiaries. The standards of success for an Income Trust are higher than most businesses. The employees of that trust hold a trust responsibility to deliver the stated amount of income at the specified time, monthly, quarterly, semi-annually, or annually. These standards are much higher than the standards for a Business. Most businesses are considered to have failed if they did not record an increased value for the business over a specified time. With Income Tusts, the Management would have failed if it did not deliver the monthly payments they were mandated to deliver. In addition, the value of shares must also go up. Most Income Trusts have delivered that Income consistently every month. In addition, share prices have also risen even a weak stock market. Standard measures of success are definitely higher for Income Trusts.
Mutual Fund Investments:
Mutual Fund Investments are different. Equally important in understanding income Trusts is the ability to distinguish between Income Trusts as individual businesses and Income Trusts that are Mutual Funds. An independent Business that is structured as an Income Trust is an individual entity. If the single business asset fails, it fails. Any investment in that Income Trust company will be affected to the full extent of the losses in the single business, if any. Mutual Funds that are structured as an Income Trust are a completely different breed of animal. Like any other Mutual Fund, the Mutual Fund - Income Trust contains any number of individual investments from a low of about 20 to 30 or so to a high of about 60 to 80 individual businesses. A Mutual Fund is created that way as a means to lower the risk for Investors. Mutual Funds have advantages including highly specialized management, diversification into different investments, tax advantages, economies of scale, among others. These are the reasons Beginning Investors are encouraged to place their investments in Mutual Funds generally because of the greater possibility of gain over the long term. Income Trusts that use this vehicle carry the advantages specific to income trusts in addition to the advantages of a Mutual Fund Investment. This is the best way to strive for the growth of your money while expecting a steady monthly income as well. the Trust cannot erase risk, but it gives double insulation from those possibilities.
Good News Investments:
These have been Good news Investments. As a trusted Money Advisor, I would highly recommend Beginning Investors to use Income Trusts as the main investment vehicle to bring them good news. They fall inside the safer group of investments to hold. The record will show that Income Trust Mutual Funds enjoyed substantial gains recently, in spite of the terrible market losses following the extended Bear Market from March 2000 to September 2001 and the economic fall out following theTerrorist Acts of NINE ELEVEN. While Equity Mutual Funds are just beginning to limp back to double-digit rates of returns, Income Trusts enjoyed good returns that ranged in the high Teens. Some went above 20% for the last five years. Next to the Good news Bears, the Resource and Precious Metals Sectors, which are more volatile, Income Trusts have been the best stable market performers. I cannot predict future returns. Neither am I attempting to do so. I am stating that in retrospect, investments in Income Trusts would have been much smarter that the Value Funds, the Equities, even the Resources Sector.
The news here is good news. You need to understand the real meaning behind the words written to sell newspapers. A year ago, the debate was on the topic of allowing Canadian Pension Funds to invest in Income Trusts. Reasons for that debate then was an Ontario Court’s ruling that cleared Investors in Income Trusts from any liability for other Investors. Here was another piece of good news. That meant that the Pension Fund Managers, these huge Managers of Money had perceived Income Trusts as a very positive investment vehicle. The debate also tells you the Beginning Investor that the Big Pension Funds have not fully invested in Income Trusts yet. These Pension Managers control huge blocks of money that are waiting to enter the Income Trust Market. They have not entered yet. Another lesson for the Beginning Investor: Buy NOW. The Big Tsunami wave of cash investments in Income Trusts is yet to come. When it comes, prices would likely rise sharply. If you are invested, you would likely reap handsome rewards for taking action instead of waiting on the crowd.
_______________________________________
For More information on the subject you can reach the Author by email fred@mortgage-Freedom.com Phone: 1-866-686-7243. To find other articles by Alfred Fraser visit the Website http://www.mortgage-freedom.com/ Alfred Fraser is a Vancouver Mutual Funds Advisor, and a mortgage debt specialist with a Canadian masters degree in economics and development.
Income Trusts
Income Trusts have had a certain level of media interest in Canada recently. The current debate questions if individual businesses should be allowed to restructure their business in the form of an Income Trust. What does that tell an Investor? It tells an Investor that the best business brains out there see an advantage in becoming an Income Trust. It tells you the Consumer that the professional Business Strategists envy the phenomenal results Income Trusts have had in recent years. Now, their strategic advice to Big Business that they should restructure and become an Income Trust has become public information. The Media is leaking out inside information that normally, is kept top secret, far from the public eye. This is the knowledge that makes Rich People
…WEALTHY.
Revenue Canada's Interest:
Since Revenue Canada is interested, the Mutual Fund Companies must be interested too. CI mutual Funds was quickest to act and improve profits. They implemented this smart tax play by converting its business model into an Income Trust. Dynamic Mutual Funds, which manages several successful Income Trust Funds had their analysts review the latest news because Revenue Canada and the finance Ministry were interested. Dynamic shared their Analysis’ Report with me for my own professional development. The Report focused on possible government action to restrict the conversion on prominent Canadian businesses, including the stellar Royal Bank into an Income Trust. Canada Revenue Agency, CRA, is reviewing these new trends to protect its taxation base. The Finance Minister, Ralph Goodale, sees this trend as a potential loss of tax revenues. The conversion toan Income Trust by these prominent, Canadian businesses is also a play so they could pay less tax. The conclusion by Dynamic’s Business Consultant is that no drastic government activity will result. The most significant result they speculate could be the imposition of the Dividend Tax Credit Rules on Income derived from Income Trusts. And such legislation seems quite unlikely in the current political climate of a minority government.
Dividend Tax Credits:
To the Beginning Investor, I must explain what this speculation on possible changes in governent legislation means. This prediction is not bad news at all. In fact, Dividend Tax Credits rank as one of the best ways to receive income under Canadian Tax laws. Stated simply, Income you derive from Interest on a Savings account, for example, is very heavily taxed ....100%. By comparison, only 50% of Income derived from Capital Gains is reported and taxed. As for Dividend Income from Canadian Sources a complicated formula not only gives a tax deduction for the interest you paid as the cost of borrowed money. It also gives you a Tax Credit. The Dividend Tax Credit therefore reduces the Taxes you the Tax Payer would otherwise be required to pay. This is the best way to receive Income in Canada. The tax burden has least impact when you receive Dividend Income.
Once again, for newer Investors, we should note that this discussion stays entirely within the realm of Income. That is money going into someone’s Account… either you the investor or the Treasury at Canada Revenue Agency. Who gets that money is what the discussion (read fight) is all about! This is not a discussion of money being lost, of Business executives caught in wrongdoing. No…No/..No. These are the discussions of wealthy Business Tycoons. YOU WANT TO BE INCLUDED ON THIS STUFF.
Beneficiaries to a Trust:
Here is another point to note. The term “Income Trust” refers equally to the individual Business that takes on the structure of a Trust holding and managing assets for its Beneficiaries. So the Beneficiaries are the shareholders. They profit when the company does well or take their losses if not. The purpose of an Income Trust is to create and deliver a regular income stream to its Share Holders and Beneficiaries. The standards of success for an Income Trust are higher than most businesses. The employees of that trust hold a trust responsibility to deliver the stated amount of income at the specified time, monthly, quarterly, semi-annually, or annually. These standards are much higher than the standards for a Business. Most businesses are considered to have failed if they did not record an increased value for the business over a specified time. With Income Tusts, the Management would have failed if it did not deliver the monthly payments they were mandated to deliver. In addition, the value of shares must also go up. Most Income Trusts have delivered that Income consistently every month. In addition, share prices have also risen even a weak stock market. Standard measures of success are definitely higher for Income Trusts.
Mutual Fund Investments:
Mutual Fund Investments are different. Equally important in understanding income Trusts is the ability to distinguish between Income Trusts as individual businesses and Income Trusts that are Mutual Funds. An independent Business that is structured as an Income Trust is an individual entity. If the single business asset fails, it fails. Any investment in that Income Trust company will be affected to the full extent of the losses in the single business, if any. Mutual Funds that are structured as an Income Trust are a completely different breed of animal. Like any other Mutual Fund, the Mutual Fund - Income Trust contains any number of individual investments from a low of about 20 to 30 or so to a high of about 60 to 80 individual businesses. A Mutual Fund is created that way as a means to lower the risk for Investors. Mutual Funds have advantages including highly specialized management, diversification into different investments, tax advantages, economies of scale, among others. These are the reasons Beginning Investors are encouraged to place their investments in Mutual Funds generally because of the greater possibility of gain over the long term. Income Trusts that use this vehicle carry the advantages specific to income trusts in addition to the advantages of a Mutual Fund Investment. This is the best way to strive for the growth of your money while expecting a steady monthly income as well. the Trust cannot erase risk, but it gives double insulation from those possibilities.
Good News Investments:
These have been Good news Investments. As a trusted Money Advisor, I would highly recommend Beginning Investors to use Income Trusts as the main investment vehicle to bring them good news. They fall inside the safer group of investments to hold. The record will show that Income Trust Mutual Funds enjoyed substantial gains recently, in spite of the terrible market losses following the extended Bear Market from March 2000 to September 2001 and the economic fall out following theTerrorist Acts of NINE ELEVEN. While Equity Mutual Funds are just beginning to limp back to double-digit rates of returns, Income Trusts enjoyed good returns that ranged in the high Teens. Some went above 20% for the last five years. Next to the Good news Bears, the Resource and Precious Metals Sectors, which are more volatile, Income Trusts have been the best stable market performers. I cannot predict future returns. Neither am I attempting to do so. I am stating that in retrospect, investments in Income Trusts would have been much smarter that the Value Funds, the Equities, even the Resources Sector.
The news here is good news. You need to understand the real meaning behind the words written to sell newspapers. A year ago, the debate was on the topic of allowing Canadian Pension Funds to invest in Income Trusts. Reasons for that debate then was an Ontario Court’s ruling that cleared Investors in Income Trusts from any liability for other Investors. Here was another piece of good news. That meant that the Pension Fund Managers, these huge Managers of Money had perceived Income Trusts as a very positive investment vehicle. The debate also tells you the Beginning Investor that the Big Pension Funds have not fully invested in Income Trusts yet. These Pension Managers control huge blocks of money that are waiting to enter the Income Trust Market. They have not entered yet. Another lesson for the Beginning Investor: Buy NOW. The Big Tsunami wave of cash investments in Income Trusts is yet to come. When it comes, prices would likely rise sharply. If you are invested, you would likely reap handsome rewards for taking action instead of waiting on the crowd.
_______________________________________
For More information on the subject you can reach the Author by email fred@mortgage-Freedom.com Phone: 1-866-686-7243. To find other articles by Alfred Fraser visit the Website http://www.mortgage-freedom.com/ Alfred Fraser is a Vancouver Mutual Funds Advisor, and a mortgage debt specialist with a Canadian masters degree in economics and development.
