BPT, CRT, DOM, NGT, LRT, MARPS, MTR, TRU
HGT - Hugoton Royalty trust (gas)
DMLP - Dorchester Minerals
PBT - Permian basin trust
SBR - Sabine royalty trust
SJT - San Juan Basin royalty trust
WTE - Williams Coal Seam Gas Trust (gas)
on the NYSE: ERF, AAV, BTE, HTE, PGH, PWE, PVX
index: XTR
15% Canadian flat tax is withheld by your broker - which is recoverable at tax time, so yes you get it back when you file the correct tax form (IRS form 1116 - foreign tax credit). Up to $400 of foreign taxes withheld by countries that have tax-treaties with the U.S. are simple to report on a 1040. Larger amounts need 1116 filled out, it’s detailed, but not difficult with tax software.
15% US dividend tax.
Trusts held in IRA’s are treated differently.
Generally you ignore “earning” for the trusts and look at free cash flow and dividend coverage from free cash flow. As trusts who will be taxed in 2011 they do not want to show a profit.
FYI, the trust are required to show their financial reports just as if the 2011 tax increase was currently in place; but they add back to cash flow the tax liability.
“Known Reserves” is key to understanding the energy trusts. It can be express in volume of know oil/gas in ground or by that number divided by expected production to give you “Years of Reserves”. Most often the years of reserves range from 8 to 13. But, they do bid on new leases and add to their “known reserves”. The point being, not just a dividend play, there is real potential for increase in stock price as the know reserve goes up in value along with energy prices.
Royalty trusts purchase the rights to royalties from the cash flow and sale of a natural resource company, generally oil or gas. They provide a higher than normal (stocks and bonds) yield. Popular ones are Canadian royalty trusts (canroys) and U.S. royalty trusts (usroys). Each have their advantages.
Royalty trusts generate above average income compared to stocks and bonds.
Since the RT is a depreciating asset, a portion of the income is considered a distribution can be written off, i.e. the cost basis is reduced.
Some RTs use energy from unconventional resources and may qualify for a fuel tax credit.
The original investment is generally never returned at the end of a trust. It is returned as ‘return of capital’ and can be deducted on income tax returns. This is because a RT is a depleting asset that eventually turns into nothing.
The income generated varies and is not fixed, like a bond or preferred stock. So a 10% yield may go higher or lower over time. The price of the commodity, generally oil or gas, can vary which impacts the income. Income is usually distributed on a quarterly or monthly basis.
The income generated is not a dividend so it is taxed as such.
Owners are required to file report the pro rata portion of a trust’s total income and expenses on their tax returns. This typically means filing Schedules E and B as well as having additional work with Form 1040.
Owners of trusts are liable for paying income taxes in the states in which the trust generates its royalties. Different states have different thresholds for when taxes have to actually be filed and paid, and the likelihood of owing income tax in multiple states increases with the size of a given ownership position.
U.S. royalty trusts cannot buy and sell assets (unlike Canadian trusts) thus they have a finite life.
Canroys are open-ended royalty trusts, meaning they can add assets anytime. Canroy owners pay a 15% foreign tax which is put on the U.S. tax return as a nonrefundable tax credit (i.e reduces your tax payment).
usroys are closed-end royalty trusts, meaning they have fixed assets. Most usroys are oil and gas related so they are depleting assets and have a finite lifetime.
Look for the expected life left of the trust.