CRA considers that an entity with no revenues can satisfy the REIT revenue tests

The 75% revenue test for REIT-qualification, or for qualification of a REIT's investment in a subsidiary as deemed real estate, requires that at least 75% of the gross REIT revenue of the REIT or subsidiary in the year in question be rents, mortgage interest or real property capital gains. CRA has effectively ruled that this test will be satisfied by a development subsidiary (or, in this case, a development LP held jointly with a developer) which does not have any revenues for the year (and similarly for the 90% revenue test for REIT qualification). This means that it is unnecessary to seed the development LP with "good" revenue, e.g., transferring a sliver interest in a rental LP to it, provided that it will not earn even a dollar of "bad" revenue in the year.

In this case, the interest of the REIT in the development LP was held by it indirectly through a wholly-owned rental property LP. CRA also ruled that the provision by the property LP of a guarantee of construction loans to the development partnership in consideration for annual guarantee fees did not represent the carrying on by the property LP of a business (so that the guarantee agreement viewed as a potentially valuable right to the fees did not represent non-portfolio property). Although this ruling likely was academic, it suggests that CRA may consider that it can be consistent with a mutual fund trust's maintaining of an investment undertaking to give a guarantee in support of one of its investments even where it charges guarantee fees.

Neal Armstrong. Summaries of 2014 Ruling 2014-0547491R3 under s. 122.1(1) – real estate investment trust, and s. 122.1(1) - security.