I Jumped on the CanRoy Bandwagon

*** This is not investment advice ***

I sold a few of my losers (FCC - a convertible bond fund and BDV - a closed-end stock fund) yesterday for tax reasons. I decided to take the proceeds of these sales and some of my stock option money to invest in two Canadian Royalty Trusts (aka CanRoys). The CanRoys own interests in oil and gas wells. They distribute monthly dividends to the trust unit holders. I purchased:

• Provident Energy Trust (PVX) - it yields 10.8%
• Harvest Energy Trust (HTE) - it yields 13%

My understanding, after dropping $400 on a specialized investment newsletter dealing strictly with CanRoys, is that after all forms are filed and all monies are dispersed, the profits from the trusts are taxed at a total of 15% - including both corporate and personal taxes. Now to get this wonderfully low tax rate I will have to jump through a few tax preparation loops:

• My broker will withhold a 15% foreign tax
• When I file my taxes, I can get this money back as a foreign tax credit
• I then report the gross dividend income as qualified dividend income and it gets taxed at 15%
• Unfortunately, my broker will probably mis-report the CanRoy income as unqualified and I'll have to spend some time calculating my true tax exposure

The price of crude oil is the largest single risk to these investments. I view it as a hedge. If oil drops down to $10 a barrel, I'll loose my shirt on my CanRoys but the economy (and the rest of my portfolio) will boom (not to mention the sheer joy of teasing my friends who are peak oil fanatics). If peak oil is real and oil goes to $150 per barrel, the CanRoys will shine.