A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining.
This system, similar to real estate investment trusts, effectively avoids the double taxation of corporate income.
An outside company must perform the actual operation of the oil or gas field, or mine, and the trust itself, in the United States, may[ambiguous] have no employees.
Additionally, since trusts often own numerous individual wells, oil fields, or mines, they represent a convenient way for the average investor to diversify investments across a number of properties.
Additionally, royalty trusts in the United States and Canada usually involve oil and gas fields or mines which are at or past their production peak, and will gradually decline in output as well as revenue; however, the infrastructure to develop them has already been built, so that an investor can expect a reasonably steady income stream.
[3] In addition to allowing investors to achieve high distribution returns, especially during periods of low interest rates, royalty trusts allow investors to speculate directly on commodities such as gas, oil, or iron ore without having to buy futures contracts, or use the other investment vehicles traditionally associated with commodities—since the trusts trade like stocks.
Since they are restricted to their original properties – for example, a group of oil fields or natural-gas-bearing rock formations—they can be expected to be depleted over time, the royalties they pay out will correspondingly decline, and eventually the trust will be dissolved.
[7] Under Prime Minister Stephen Harper — who was sworn into office 6 February 2006 after winning against the incumbent Paul Martin — the Canadian federal government announced the elimination of the loophole that placed over 250 income trusts at a tax advantage over other corporations.
[7] If the trend of trusts conversions was not stopped, it was estimated that the Canadian federal and provincial governments would lose "$1 billion annually in tax revenue".
then- Penn West Energy Trust) — still referred to as known as Penn West Petroleum in the media — [8] In an interview in January, 2013 Matt Donohue, an analyst at UBS AG in Calgary, argued that the growth-and-income model was "bruised" not "broken" with income trusts converting back into a corporate structure.