28 February 1994 External T.I. 9403285 - REAL ESTATE INVESTMENT TRUST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

			940328
XXXXXXXXXX	C.R. Bowen

Attention: XXXXXXXXXX

February 28, 1994

Dear Sirs:

We are writing in reply to your letter of February 7, 1994, wherein you requested our position on the types of redemption features provided by a real estate investment trust ("REIT") that will meet the definition of "unit trust" under subparagraph 108(2)(a)(i) of the Income Tax Act (the "Act").

The unit holders of some REITs can either trade their units on a stock exchange or redeem them from the fund. In order to meet the wording in subparagraph 108(2)(a)(i) of the Act, the units must, among other things, be redeemable "at the demand of the holder." Although we have not developed a position on all of the redemption features being offered by REITs that have been brought to our attention, our comments on those features we have considered are as follows:

1. Where the trustees of a REIT have the right to suspend the redemption of its units for valid reasons and such a suspension is imposed, it is our opinion that a suspension which lasts for more than 12 months will cause the fund to cease to qualify as a unit trust after the 12 month period expires.

2. A REIT which has a permanent cap or limit (e.g., a fixed dollar amount or calculated as a percentage of the net asset value of the fund) on the units that it will redeem on its valuation dates will not meet the definition of unit trust. No decision has been reached as to whether we will permit a newly created REIT to have a cap or limit on the amount of redemptions permitted in its first 12 months of operation (assuming a valid reason for the necessity of the limit can be demonstrated by the REIT).

3. A REIT offering redemption of its units at a reasonable discounted redemption price (i.e., as a percentage of the current stock market price of the unit) will meet the definition of unit trust where the fund is able to demonstrate that it is reasonable to expect that under certain conditions investors would redeem their units as opposed to selling them on the stock market. Payment other than by way of cash will be acceptable if, among other things, the property received by the unit holder represents an investment vehicle that would not discourage a unit holder from requesting redemption from the fund and such property is given as absolute payment of the redemption price.

Should you be interested in obtaining our comments on a particular redemption feature which is not indicated above, you may contact Catherine Bowen at (613) 957-8585 and she will advise you as to whether we have addressed that feature and what, if any, position has been taken.

We trust that our comments will be of assistance.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch