Most investors choose a Canadian REIT (real estate investment trust) because it are tax efficient, and it doesn’t make any difference whether or not the REIT is public or private. Qualified REIT trusts enjoy a variety of benefits:
1) The ability to distribute income to investors without entity level taxation
2) Tax is not paid twice: net taxable income is distributed to REIT unitholders, and no additional income tax is paid on that income (income tax will be eventually be paid)
All unitholders, regardless of the size of their investment, or whether or not they are individual investors or business entities, enjoy the tax benefits associated with a REIT. This is because a portion of your distributions are regarded as a return on capital, and are therefore not taxed. A qualifying REIT should benefit from flow-through rules for taxable income, and this can occur after tax depreciation and deductions are claimed by the REIT itself.
Basically, it’s as though REIT investors themselves owned the property in the portfolio, and are therefore entitled to the same flow through benefits that they would enjoy as property owners. However, investors enjoy all of the rewards but suffer none of the risks of owning property. There is no debt to be managed, and no threat of litigation. It’s a very elegant solution for building wealth.
So, unlike many partnerships, the tax issues for REIT investors are quite simple. As well, investors benefit from what can be significantly higher yields compared to better-known investment vehicles. Real estate investment trust shares also enjoy significant liquidity, especially when compared to traditional real estate investments. These investment trusts can also be quite diversified, and therefore can be considered safer and more stable alternatives to investing in the stock market, which itself has seen considerable volatility over the past 3 years, a volatility that is expected to continue for at least the next decade. This real estate investment in Canada is a safe bet.
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