Tax Benefits
As a real estate investment trust, CREIT is structured to achieve tax efficiency for its investors. As a Trust, CREIT is not subject to large corporation tax or capital tax - an advantage that REITs enjoy over Canadian real estate corporations.
REITs are not generally required to pay Canadian income tax if they distribute all of their net income for tax purposes on an annual basis to unitholders. CREIT, in accordance with its Declaration of Trust, distributes a large percentage of its cash flow, which exceeds taxable income due in part to capital cost allowance (depreciation) deductions for tax purposes. This excess is generally not taxed currently in the unitholders' hands, but is treated as a return of capital with the tax deferred until the units are disposed of.
REIT units are usually qualified investments for registered plans such as RRSPs, RRIFs, DPSPs, RESPs, and TFSAs.
In general, when a unitholder disposes of a REIT unit it gives rise to a capital gain (or loss) equal to the amount by which the proceeds, net of disposition costs, exceeds (or is less than) the tax cost of the unit. Under the current tax rules in Canada, the unitholder in effect, need only include one-half of the capital gain in his/her taxable income.
Commencing in 2005, non-resident unitholders are subject to withholding tax at a rate of 25% (or less if reduced by Tax Treaty) on the distribution paid and allocated as other income or capital gains. In addition, 15% tax must be withheld on the portion of the distribution that is a return of capital, with no treaty reductions available.
