Skip to Content

Potential For Tax Efficient Investment Growth in REITs

Todays investment environment is very challenging.  Stocks are extremely volatile and returns on traditional fixed income investments are at record lows and are highly taxed.  Real estate investment trusts, as one of the few remaining tax efficent investment vehicles, have the potential to generate significantly higher after tax returns for investor.  Over time, rate of return and tax efficiency have a major impact on your total after tax returns.

The following chart shows the hypothetical growth of $100,000 over a 25 year period assuming an investment in either a savings account (or form of interest bearing account) versus one in Centurion Apartment REIT.  It assumes:

  • Deposit interest rates of 2.00%
  • Centurion Apartment REIT Distributions Rate of 8.00% per annum that are reinvested in REIT Units
  • Tax rates of 46%
  • Capital gains inclusion rate of 50%
  • Growth in distributions and REIT Unit capital growth of 2.00% per annum 
  • 100% of distributions are distributions of capital


Based on the above assumptions, an investor could double their investment in 9 years in Centurion Apartment REIT. It would take 65 years to double your money in a savings account. Most fixed income investments are taxed at full tax rates.  An investment in a REIT (assuming that it is distributing capital) allows your taxes to be deferred until you sell your investment or you have collected enough distributions so that your adjusted cost base falls below zero.

* This is a hypothetical example that makes a number of assumptions about the future which may or may not be realized. Potential investors are strongly urged to obtain professional advice.  A savings account (or other fixed income investment) and an investment in Centurion Apartment REIT are not directly comparable in many respects.  This hypothetical example is not a forecast of future results nor should it be interpreted as a guarantee that the above results will be achieved.  Potential investors should refer to the Offering Memorandum for full details of Centurion Apartment REIT.  

How Are REIT Distributions Taxed

Because of the depreciation (capital cost allowance) that a REIT is able to deduct from income in any given year, in many years a large proportion of distributions (if not all) may be distribution of capital.  This return of capital isn´t taxed in that year.  It goes to reduce the investors Adjusted Cost Base (ACB).  The investor will pay taxes at capital gains rates, when the ACB falls below zero (ie they have gotten all of their money back) or they sell their REIT units.  This means that an investor may be able to defer taxes for many years and have the additional flexibility of timing their tax liability.

In this table, you can see how your adjusted cost base is calculated.  Distributions of capital reduce the cost of your investment.  You will trigger capital gains tax when you sell your units or your adjusted cost base falls below zero.  Even then you will be taxed at capital gains rates, which are half that of regular income (like interest from bonds, or savings accounts), allowing you to pay less tax, keep more of your money, grow your portfolio faster and defer your taxes for much longer!





Unit Price

# of Units




 Distribution  Adjusted Cost Base

 Capital Gain (If Sold)

 1     $100,000  $10.00  10,000 $0.80  $8,000  $92,000 $8,000
 2    $10.20  10,000 $0.82  $8,200  $83,840  $18,160
 3    $10.40  10,000 $0.83  $8,323  $75,517  $28,523
 4    $10.61  10,000 $0.85  $8,490  $67,027  $39,094
 5    $10.82  10,000


 $8,659  $58,368  $49,832

* This example is for illustration purposes only. It assumes that all distributions are return of capital.  It is possible that distributions may include income which may be taxed in the year of distribution if the REIT has earnings that exceed capital cost allowances available to the REIT or the REIT has other earnings (e.g. from the sale of a property, interest earnings etc).  While many REIT´s are able to distribute capital for many years, the situation in any given year can change and isn´t guaranteed.  We are real estate investors, not tax professionals and potential investors are encouraged to seek professional tax advice.