Canadian Real Estate Investment Trusts
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The concept of Real Estate Investment Trusts (REITs) began in the United States, and covered companies that owned and managed real estate (equity REITs) and those that financed it in various ways (mortgage REITs).
Canada picked up on the ideas, but there they are not corporations, but mutual fund trusts akin to other Canadian income trusts. And owning and managing real estate is their main source of income. Unlike US REITs, they don't much engage in the development of real estate.
The first REIT listed on a Canadian stock exchange was Canadian Real Estate Trust which began on the Toronto Stock Exchange in September 1993.
Canadian real estate trusts are flow through entities (FTEs). The trust pays no taxes as long as they pay out at least 90% of net profits to the unitholders. These people then are responsible for paying their individual taxes to Canada's equivalent of the IRS -- Canada Revenue Authority (CRA).
This is through the Canadian Income Tax Act.
Unlike with corporations, therefore, there is no double taxation of net revenue. This should be quite an attractive situation to investors.
Standard & Poor’s announced that it would add income trusts to its Canadian indices.
Since one form of real estate expense is depreciation, some of the money sent to unit holders is considered return of capital. Return of capital is not taxed, because it's return of capital NOT income.
(That's because depreciation is not a cash expense. It's just assumed that a given building is worth 10% less than it was last year because of wear and tear. It increases net income, and therefore increases the amount of dividends payable to the trust's unitholders.)
(In Canada, this form of depreciation is known as Capital Cost Allowance (CCA).)
However, it lowers the unit holder's cost basis in the unit. That means that they'll pay higher taxes if they ever sell it.
Moral -- don't ever sell your units in Canadian REITs. You don't want to pay a penny more to either the CRA or IRS.
On October 31, 2006 the Canadian government announced -- just after an election in which it promised to keep Canadian trust funds tax free -- that beginning in 2011 Canadian trust funds would be taxable.
This is known as the SIFT (Specified Investment Flow-Through) legislation. However, some Canadian REITs may have trouble meeting this exemption due to the nature of their assets. This is one troubling issue to Canadian real estate investment trusts.
Canadian Real Estate Investment Trusts Will Continue to Operate in 2011 and Beyond
However, this does not apply to Canadian real estate trusts, so they will remain tax-free in 2011 and beyond.
Canadian REITs fall into these categories --
Canadian REITS Include:
- Allied Properties -- Class 1 office buildings
- Artis REIT -- concentrates on commercial real estate that's in Western Canada
- BTB REIT -- focuses only on property east of Ottawa in Canada
- Boardwalk -- residential apartment buildings
- Calloway -- shopping centers anchored by a Wal-Mart
- Canadian Apartment Properties -- multi-unit apartment buildings
- Canadian REIT -- oldest real estate investment trust in Canada
- Chartwell Seniors Housing -- long term care facilities for senior citizens
- Cominar -- largest landlord in Quebec and Ottawa
- Crombie -- largest landlord in Eastern Canada
- Dundee -- largest owner of retail, office and industrial properties
- Extendicare -- nursing homes in the United States and Canada
- H&R REIT -- commercial properties in Canada
- Holloway Lodging -- hotels under various brands
- Huntingdon -- variety of commercial properties around Canada
- InnVest -- owns Canada's largest portfolio of hotels
- InterRent -- many apartment buildings in Southern Ontario
- Lakeview -- chain of hotels in Canada
- Lanesborough -- retail, office and industrial properties
- Morguard -- Canada's largest integrated REIT of commercial properties
- Northern -- apartment buildings in Northern Canada
- Primaris -- mid-market and dominant shopping centers
- Public Storage Canadian Properties -- owns many of Public Storage facilities in Canada
- Retrocom -- owns mid-level commercial real estate properties
- RioCan -- largest owner of commercial real estate trust in Canada
- Royal Host -- owns hotels and resorts across Canada
- Scott’s REIT -- leading operator and owner of small box retail properties
- Temple Real Estate Investment Trust -- acquiring and managing hotels across Canada
- Whiterock -- mid-market commercial retail, office and industrial properties in select locations across Canada
- Firm Capital Mortgage -- Canada's only financing real estate investment trust
- CANMARC REIT -- owns many different kinds of property all around Canada
- Leisureworld Senior Care -- many long term care facilities for the elderly in Ontario
- Northwest Healthcare Properties -- many healthcare facilities throughout Canada
- TransGlobe Apartment -- owns a large number of apartment buildings in urban areas of Canada
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