Dear Nancy Woods,
Since real estate investment trusts' payout is classified as dividend income, return of capital (ROC) and capital gains, which type of account would be most beneficial tax wise to hold it? A tax free savings account (TFSA ), a non-registered account or a registered account like an RRSP?
Thank you, Gus
Dear Gus,
If your primary concern is the taxes, then the obvious choice to hold a REIT in a TFSA. Any growth or income in this account is non taxable and then you definitely don't have to worry about the tax impact. After that option, I think the fact that there is a portion that may be considered as return of capital, you can own it in a non-registered account. There is additional book-keeping that is needed to keep track of the lowered adjusted cost base (ACB) but most financial institutions amend it for you.
With a lower ACB you are deferring the capital gains tax to until you sell the shares.
If the REIT is held within the RRSP, there is less tax hassle and cost until you deregister the funds either as cash, from selling the shares, or in kind. Either way, the amount is fully taxable as income.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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