# REIT income - How is it taxed?



## HackNSlash (Apr 3, 2009)

Hi all,

How is the distribution income from REITs taxed? Is it a dividend payment that qualifies for the dividend tax credit?


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## Eclectic12 (Oct 20, 2010)

HackNSlash said:


> Hi all,
> 
> How is the distribution income from REITs taxed? Is it a dividend payment that qualifies for the dividend tax credit?


The short answer is that it depends on the makeup of the distribution, where each type is reported on your tax return in a different spot.


The long answer is that most trusts (not all are Real Estate, which is the type that pays the least tax) will publish on their web site a breakdown of the payments. Each type has a different implication and is reported differently on your tax return. 

Some examples I've seen:

a) eligible dividends - which qualify for the dividend tax credit.
b) income or foreign income - full taxed and reported as income.
c) return of capital - which while the Adjusted Cost Base is positive, is subtracted from the ACB and after the ACB hits zero or negative, is reported as a capital gain.
d) capital gains - reported as a capital gain.
e) interest - reported as interest.

Here's a few links for the breakdown for a couple of trusts:
https://riocan.com/_bin/tax/taxInfo.cfm
http://www.firstasset.com/products/distribution.php?id=51


Usually, the broker will provide:
1) a summary by trust unit
2) tax forms with the totals (ex. T3 and T5). However, depending on how quickly the trust has reported the info to them plus how many you have, may result in a couple of sets of T-forms. Some of my trust units are slow reporting so I received the first set of T forms in late Feb, a second set in March and the last set early April.

Here is a more detailed description to get you started:
http://www.milliondollarjourney.com/how-return-of-capital-works.htm
http://www.milliondollarjourney.com/income-trust-distributions-and-taxation.htm
http://www.taxtips.ca/personaltax/investing/taxtreatment/incometrusts.htm


If this sounds like a lot of work - bear in mind that the same review is required for mutual funds or exchange trade funds. They also can include a range of the same types of distributions, with the same tax implications. So either way - it is an important tax process to be familiar with. 


Cheers


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