Thursday, 13 December 2012


A real estate investment trust REIT normally owns real estate (in the US some REIT's own mortgages) and the holders of units in the REIT, like share holders, each own a share in the underlying asset of the trust. REIT's are commercial trusts which are run by the trustees and owned by the beneficiaries (unit holders). Trustees often contract the management of the REIT to a company. REIT's pay no tax in Canada, but the unit holders have to report all the income or capital gains generated in the REIT. REIT's in Canada are required to issue a form T3 annually to all its unit holders reporting such income and capital gain. REIT's are also required to distribute about 90% of their income to qualify for the tax exemption.  One interesting feature of Canadian REIT's is that they make distributions monthly and part of the distribution could be non-taxable.  This part is called return of capital and therefore reduces the adjusted cost base of the REIT and consequently results in higher capital gain when the REIT is sold.

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