Canadian investors will never forget Oct 31st 2006 and the impact that a change in federal tax law basically eliminated the incentive for many Canadian businesses to organize as income trusts. The elimination of the income trust “loophole” sent shock-waves through Canadian financial markets. Could the same trends be currently at work in the US?
Its worth considering the trend to income trust conversion that happened in Canada prior to the door closing in October 2006 in light of the growing interest businesses have in income trust conversion happening in the US, and the broadening list of businesses pushing the limits of the US income trust rules. The main differences in the current trend of US income trust conversions is US companies are only broadening the interpretation of what is “real estate” for REIT purposes. This is different than the Canadian trend prior to 2006 where many businesses unrelated to real estate converted to income trust status. The issues being debated in the US surround what is considered real estate, and the related issues that would satisfy REIT status such as other active business income and the technical tax aspects of a REIT spin-off.