# Tax Consequences of REI.UN vs XRE



## Cal (Jun 17, 2009)

Generally speaking is XRE taxed the same as REI.UN in non registered accounts? What I am looking at is it taxed any different b/c it is a ETF? 

I am aware of the tax consequences of REIT's. (for those who aren't: http://www.theglobeandmail.com/glob...our-head-around-reit-taxation/article5575073/)

The reason I ask is I couldn't find anything on the ishares site (http://www.blackrock.com/ca/individual/en/products/239843/ishares-sptsx-capped-reit-index-etf) regarding a breakdown on 'capital gains', 'other income', 'foreign non-business income' or 'reduction in adjusted cost base' for XRE.


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## Eclectic12 (Oct 20, 2010)

I'll have to check ... I doubt it as for RioCan's 2013 year, something like 69% of the cash distribution was being taxed at the highest rate (i.e. the same as employment income), 30% was Capital Gains and 0.53% was Return of Capital.

*Edit:*
Over the last decade, RioCan's "Other Income" has been from a low of 31.24%, with a lot of years around 50% and last year was the high at 61.77%



I'm thinking XRE is not that skewed a breakdown.


I'll check & provide an update.


Cheers


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## Eclectic12 (Oct 20, 2010)

Okay ... it's as I expected ... here's the comparison.


For 2013, RioCan's breakdown is $1.41 paid, where 61.77% is "Other Income", 30.17% is "Capital Gains", 7.54% is "Foreign Non-Business Income" and 0.52% is "Reduction in Adjusted Cost Base" (i.e. RoC).


XRE on the other hand, lists $1.39091 paid, with 0.00048 is "Eligible Dividends", 0.29658 is "Other Income", 1.01882 is "Capital Gains", 0.06280 is "Foreign Income", -0.00104 is "Foreign Tax Paid", 0.01327 is "Return of Capital".

When I add the "Other" plus the "Foreign" and divide by the paid amount, I end up with 25.8% being taxed heavily compared with almost 70%.


To find the breakdown, to the XRE page on the web site, click on the "Distributions" tab and just under that line, switch the selection from "Recent" to "Calendar Year".


I'm not sure why they changed it but that's the change they made.


Cheers

*PS*

I'm not sure if the link will keep the "Recent" versus "Calendar Year" but here's the link.
http://www.blackrock.com/ca/individ...A&siteEntryPassthrough=true&shortLocale=en_CA


A quick scan of XRE makes it look like 2008 was the high point with 42% being taxed heavily ... most other years look lower. I leave the fuller analysis in your capable hands.


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## andrewf (Mar 1, 2010)

This is why I'd rather have REITs in the TSFA than bonds. Many REITs have an "other income" yield higher than bonds.


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## leslie (May 25, 2009)

The implication of most of this thread is that the lower the fully taxable portion the better. 
But the fact that the taxable portion of Riocan's income is higher reflects that fact that Riocan actually has operating profits TO distribute. That is a good thing. A really, really good thing.
So yes your tax bill is greater but the quality of profits is also much greater. 
And the whole point of distributing operating profits tax free is so they can go into tax shelters like pension plans and RRSPs and TFSAs - untaxed as well in the hands of the recipients. So holding them in taxable accounts really defeats their purpose.


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## Eclectic12 (Oct 20, 2010)

Cal said:


> ... What I am looking at is it taxed any different b/c it is a ETF?
> I am aware of the tax consequences of REIT's...


Returning to this part of the question .... as I understand it, REITs/MFs/ETFs are all the same in the sense that they can distribute their cash as several different forms of taxable income (i.e. capital gains, return of capital, other income, foreign non-business income etc.).

The difference I am aware of is that an ETF is more likely to have phantom distributions than the other types.
http://www.theglobeandmail.com/glob...by-phantom-etf-distributions/article18225076/


Cheers


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## Eclectic12 (Oct 20, 2010)

leslie said:


> The implication of most of this thread is that the lower the fully taxable portion the better...
> So holding them in taxable accounts really defeats their purpose.


Since the OP is specifically asking about holding in a taxable account - then RioCan becomes a bad choice, as you say - does it not?


Cheers


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