REITs in RRSPs

Question: Could you please outline the advantages and disadvantages of holding an REIT in an RRSP as opposed to in a non-registered account? – M.T.

Answer:

REITs generate cash flow that is partially tax-advantaged. That’s because the source of the money is rental income, against which depreciation allowances can be deducted. When REIT income is received outside a registered plan, a portion of the money is therefore tax-deferred, which means you do not declare it in the year received. In 2000, for example, 55% of the payment of $1.07 per unit from the Riocan REIT received this treatment. However, the amount of all tax-deferred payments must be deducted from the price you originally paid for the shares for purposes of calculating capital gains tax liability when you sell. This is called an “adjusted cost base”.