What is the tax rate for REITs in Canada? (2024)

What is the tax rate for REITs in Canada?

REITs are generally trusts. In Canada, trusts are taxed at the highest personal marginal tax rate. In Ontario, this rate is 53.53%.

How are REITs taxed in Canada?

REITs offer certain tax advantages to encourage this investment. In Canada, a REIT is not taxed on income and gains from its property rental business. Instead, shareholders are taxed on a REIT's property income when it is distributed, and some investors may be exempt from tax.

How much of REIT income is taxed?

The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec.

Do Canadian REITs have to pay dividends?

Canadian REITs tend to use more debt to finance operations, including mortgages secured by property holdings. Typically, Canadian REITs pay monthly distributions (dividends) as opposed to quarterly payouts for U.S. REITs.

What are the benefits of REITs in Canada?

REITs are also required to provide investors with regular distributions, giving them access to investment grade real estate, diversification, regular income including retirement income, professional management, new development management, and long-term capital appreciation.

How are dividends from REITs taxed in Canada?

When you receive the net income from the REIT as distribution, the amount received would be added to your personal tax return and it is taxed at your marginal tax rate. If you invest in the REITs using registered accounts such as TFSA and RRSP, there's no tax implication.

What are the rules for REITs in Canada?

To qualify as a REIT, a trust needs to be a publicly traded unit trust that is resident in Canada and must meet tests set out in the Income Tax Act (Canada) (the “ITA”) based on, among other factors, the nature and quantity of real estate assets owned and the sources of trust revenue.

How to avoid taxes on REITs?

If you own REITs in an IRA, you won't have to worry about dividend taxes each year, nor will you have to pay taxes in the year in which you sell a REIT at a profit. In a traditional IRA, you won't owe any taxes until you withdraw money from the account.

Are REITs 90% taxable income?

To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

How do REITs avoid double taxation?

Unlike many companies however, REIT incomes are not taxed at the corporate level. That means REITs avoid the dreaded “double-taxation” of corporate tax and personal income tax. Instead, REITs are sheltered from corporate taxes so their investors are only taxed once.

What is the best REIT in Canada?

There's no question that some of the most popular REITs to buy are residential REITS. And while there are several high-quality residential REITs to consider in Canada, two of the best are Canadian Apartment Properties REIT (TSX:CAR. UN) and Morguargd North American Residential REIT (TSX:MRG. UN).

Which REITs pay the highest dividend in Canada?

What is the difference between Canadian and US REITs?

Canadian REITs are significantly cheaper than U.S. REITs, with lower cashflow multiples and greater discounts to net asset value. However, higher leverage and smaller market caps make them riskier as well.

What are the pros and cons of REITs Canada?

Real estate investment trusts reduce the barrier to entry for investors in the real estate market and provide liquidity, regular income and other perks. However, you'll be exposed to risks that aren't inherent in the stock market and dividends are subject to ordinary income tax.

Are Canadian REITs a good investment?

On the whole, Canadian REITs have been underperforming — at least insofar as XRE is a good proxy for the sector. The good news is that Canadian REIT returns with dividends included have been reasonably good. REITs usually pay high dividends, and Canadian REITs offer particularly high yields when compared to U.S. ones.

How much dividend is tax free in Canada?

AMT starts when the dividends reach $55,002 (2022 $54,403). Federal AMT is applicable for dividends above this amount, until the amount of the dividends reaches $175,218 (2022 $161,215), when the regular federal tax equals or exceeds the minimum amount.

How much tax do you pay on REIT dividends?

However, qualified dividends are taxed based on the shareholder's individual tax bracket, which could be 0%, 15%, or 20%. For example, if a shareholder receives $2,000 in dividends from a REIT and receives the 15% qualified dividend tax rate, they will pay $300 in taxes.

How are US dividends taxed in Canada?

Since U.S. dividends are not paid from Canadian corporations, U.S. dividends do not qualify for the preferential Canadian dividend tax treatment. Foreign dividends, including U.S. dividends, are subject to tax at your marginal tax rate like interest income.

How to buy REIT in Canada?

Investing in REITs in Canada

The easiest way for investors to add REITs to their investment portfolio is to purchase a REIT ETF through their discount brokerage account. The top REIT ETFs in Canada are BMO's ZRE, Vanguard's VRE and iShares' XRE.

Can anyone start a REIT in Canada?

Forming a REIT in Canada is a lot more complicated than investing in one. The process can be complex, and it is best to involve professionals in setting up the trust. The entity must be a publicly traded trust and, to qualify as a REIT, it must pass the test found in the Income Tax Act.

What is the 90% rule for REITs?

Even with a challenging market, REITs are considered a staple for many investment portfolios thanks to the 90% rule. As the name implies, this rule stipulates that real estate trusts must distribute 90% of their taxable earnings to existing shareholders.

Is it OK to hold REITs in a taxable account?

This makes them a great type of dividend investment to hold in tax-advantaged retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s. In this scenario, you wouldn't need to keep track of the cost basis from ROC. It's also okay to own REITs in taxable accounts.

Are REITs worth the taxes?

The Bottom Line

REITs provide unique tax advantages that can translate into a steady stream of income for investors and higher yields than what they might earn in fixed-income markets.

Are REITs tax friendly?

For shareholders or partners domiciled in zero- or low-income tax states, REIT benefits compared to partnerships can be substantial, as they avoid income taxes in other, higher tax rate, states—all or part of which would be a permanent cost.

What is the payout ratio for Canadian net REIT?

Canadian NET REIT Offers A 7% Yield With A ~60% Payout Ratio.