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What are you thoughts on keeping REIT in a taxable account if you have already maxed out your registered accounts? The REIT's RoC distribution effectively acts as a tax deferred shelter.

http://www.finiki.org/index.php?title=Tax-Efficient_Investing
I prefer to hold REITs in a RRSP (or TFSA in the future). The reason is that most of the return from REITs comes in the form of distributions. Even if 50% is classed as ROC, that's still a significant tax hit depending on your tax bracket. If the only location I can keep REITs is taxable accounts, I'd prefer to skip it and go with Canadian equities instead.
 

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What are you thoughts on keeping REIT in a taxable account if you have already maxed out your registered accounts? The REIT's RoC distribution effectively acts as a tax deferred shelter.

http://www.finiki.org/index.php?title=Tax-Efficient_Investing
Okay ... I found where the link says that it's tax deferred but I don't understand it.

Return of Capital (ROC) is your capital coming back to you. You'd already paid taxes on it so I'm not sure where the tax deferral is happening.

It also reduces the Adjusted Cost Base (ACB) each time it is paid. If the ACB hits zero or below, the ROC becomes a capital gain that has to be reported on that year's tax return. This is a preferred rate but again I don't see a deferral.

Am I missing something?
 

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There is no tax on a RoC distribution. Instead one reduces the ACB, hence the tax consequence of a RoC distribution is deferred until the units are sold.

http://howtoinvestonline.blogspot.com/2010/07/return-of-capital-separating-good-from.html
Hmmm ... most of the time, yes.

However, as the URL indicates:

"However, it is possible that years of ROC distributions will reduce the ACB to zero. Any ROC received after ACB reaches zero must be reported in the tax return for the year of receipt as a capital gain."

At that point, the ROC capital gain tax is paid yearly and if the ACB stays the same, when the units are sold, the capital gain is 100% of the proceeds.

I guess what I'm getting at in an unclear way is that each ROC has an impact.
Usually when "tax deferral" is mentioned, it's in the context of an RRSP where buy/sell/ROC/Dividend etc. have no tax consequences - only the withdrawal does.
 
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