The recent PricewaterhouseCoopers publication Income Trusts: Planning for 2011 and Beyond summarized the key business, strategic and tax issues facing income trusts. The purpose of this Tax Memo is to provide more detailed comments about certain Canadian income tax issues that are relevant for planning income trust “conversions” and acquisitions, taking into account draft tax legislation that was released on July 14, 2008 (the Conversion Proposals).
The Conversion Proposals are meant to facilitate the conversion of specified investment flow-through (SIFT) trusts into corporations. However, they should also be considered in connection with any acquisition or reorganization of an income trust, including an income trust that is, or intends to qualify as, a real estate investment trust (REIT) or that does not otherwise expect to be subject to tax under the SIFT rules.
Some of the Conversion Proposals apply automatically while others are elective. Therefore, depending on the circumstances, it may be desirable to either fail to qualify for, or not elect into, certain provisions. This could be an important consideration when the transactions are not part of what might be colloquially considered a trust conversion, such as a taxable acquisition and privatization of an income trust, or when trust unit holders wish to realize accrued losses on their trust units.
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