CMFAS CM-EIP REITs & Business Trusts question: large fixed proportion

CMFAS CM-EIPREITs & Business Trusts

Unlike a REIT, a business trust is generally NOT required to distribute a large fixed proportion of its income. What practical implication does this have for investors?

A Business trusts must by law always pay out higher distributions than comparable REITs do
B Business trusts are prohibited from listing their units on an exchange
C A business trust has more discretion to retain income, so its payout can vary more
D A business trust’s distributions are guaranteed by its trustee-manager

Show the answer and explanation

Answer: C. A business trust has more discretion to retain income, so its payout can vary more

REITs must distribute most of their income to enjoy their tax treatment, whereas a business trust has discretion to retain or pay out income — so its distributions can be more variable and are set by the trustee-manager.

Common mistake

Assuming a business trust behaves like a REIT with a mandated high payout.

Practise more CM-EIP REITs & Business Trusts questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: REITs & Business Trusts CMFAS CM-EIPpractice questions & mock exams

CMFAS CM-EIP REITs & Business Trusts question: large fixed proportion

Answer: C. A business trust has more discretion to retain income, so its payout can vary more

Common mistake

Related CMFAS CM-EIP questions

CMFAS CM-EIP REITs & Business Trusts question: large fixed proportion

Answer: C. A business trust has more discretion to retain income, so its payout can vary more

Common mistake

Related CMFAS CM-EIP questions