Dialogue
FROM: MAR-APR 2003 ISSUE
Real Estate Investments
In the article "Rental Property Ownership," ("Tax Strategy," CGA Magazine, November-December 2002), Francine St-Onge may have overlooked another form of rental property ownership — owning units of a closed-end mutual fund known as a Real Estate Investment Trust (REIT). This is an option for investors who do not have the financial capability to own a portfolio of rental properties to minimize their risk.
A Canadian real estate corporation generally creates a REIT as an alternative vehicle to debt or equity financing. For example, one reason why O&Y Properties Corporation transferred a significant portion of its realty portfolio to a REIT it recently created was to finance a major commercial property construction project in downtown Toronto. The chairman and CEO of Acktion Corporation, which created the Morguard REIT, is Rai Sahi, CGA.
One of the features that makes a REIT attractive to investors is its tax shelter feature. Bearing in mind that it is treated for tax purposes as an inter vivos trust and that the capital cost allowance it claims is a non-cash expense, an REIT can distribute amounts in excess of its taxable income to unit holders. This excess is not taxed as income, but instead reduces the adjusted cost base of the units owned.
There are risks entailed in any investment. However, as Larry Short stated in his article "Realty Shift" ("Investing," CGA Magazine, November-December 2002), "... adding just a bit of real estate to your investment portfolio could lower the overall risk to your wealth."
Alan Pellettier, CGA
Toronto
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Accountable Fitness
I was amused by Vijay Vyas' letter in the November-December 2002 issue, suggesting that fitness club memberships become deductible for tax purposes. This would, of course, place an onus on the clubs to report attendance to the CCRA; failure to show up at least three times per week and engage in 30 minutes of cardio would result in reassessments, plus penalties and interest.
Doug Hubel, CGA
Toronto
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