[Retired at 31]

Looking at reits and other income trusts, this seems like a good thing from an investor standpoint in a non-registered investment account. Rather than getting 100% of the distribution in taxable income, the roc comes out tax free and reduces your cost base. In the future when the unit is sold (assuming the value stays the same or rises), you are now paying tax on a capital gain at a more favourable rate. So it defers and decreases tax payable.

I'm having a hard time equating what a giant entity like a trust is doing on their side when they return capital though. I'm trying to compare to what a small corporation would have to do so that it could return capital and am drawing a blank....

 

[Retired at 31]

Yeah, I'm trying to compare a piece of commercial real estate in a private corp vs. a reit. I've done a bit more research and roc isn't the big bad wolf it's made out to be imo. They're just returning depreciation/amortization of the properties back to you. I'd also do the same thing with a private corp.

The math gets interesting though - private corp is taxed at passive amount and I've heard cra watches closely for unreasonable wages coming out of the corp. Dividend is an option, but with big hit to get tax paid, it's not as attractive. I've heard some will use a 2nd corp for "property management", but this would likely still require some hoop jumping. A single address in a single city is quite concentrated, but the building I've found has a 10 year lease with a government funded agency, so it's a bit more secure than average. It's showing a 10% cap rate on cash purchase, even higher with mortgage - pending interest rates.

I agree with the limitation to entry prices due to previous acquisitions - even a market correction isn't going to fix this for existing properties. I'm pretty bearish on RE in canada overall but commercial properties are largely a function of their return. If a reit can provide the same or similar return to a closely held corp, I think there's a benefit there. Taxation seems to be slanted in the favour of the reits from my research so far.

I'll probably end up spending some money on the guy with letters after his name to do a real life comparison. I'm smart enough to be dangerous.

It's funny how real brick and mortar in front of you can change your decision. I'm looking at 25% down on a 7 figureish building and am comfortable with it, but the thought of 250K in a reit gives me the willies.

I'd love to hear from others with rental properties in a private corp. What do you do to get around the passive income tax? Do you take full CCA? Do you extract the CCA amount or just the true profit?

 

[Retired at 31]

Thanks leslie. I'll have to take a closer look at the issued shares in a couple of benchmark reits I was comparing. The local building is on hold for the moment - the "government agency" turned out to be a non-profit who has some government funding - a key distinction that the broker didn't communicate.