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.
Principal Issues:
Whether income received from a trust that is a Real Estate Investment Trust (REIT) would qualify as income from real property and therefore be included in the computation of earned income for RRSP purposes.
Position:
No.
Reasons:
Rental income from real property distributed by a trust to a beneficiary would lose its character and would be deemed to be income from a property that is an interest in a trust and not from any other source pursuant to paragraph 108(5)(a).
5-970359
XXXXXXXXXX J. Leigh
Attention: XXXXXXXXXX
February 26, 1997
Dear Sirs:
Re: Real Estate Investment Trust ("REIT") and Earned Income
This is in reply to your facsimile dated February 7, 1997 in which you requested our views on whether income received from a trust that is a REIT would qualify as income from real property and thus be included in the calculation of earned income for purposes of a Registered Retirement Saving Plan (RRSP).
The Income Tax Act (the "Act") specifically provides for certain types of income to flow through a trust and retain their character in the hands of a beneficiary. These include taxable dividends, taxable capital gains, foreign source income, certain superannuation or pension benefits, and certain death benefits. However, the Act does not provide for the flow through of rental income from a trust to a beneficiary. Therefore, rental income received by a trust and distributed to a beneficiary does not retain its character. Pursuant to paragraph 108(5)(a) of the Act, such income is deemed to be income from a property that is an interest in a trust and not from any other source.
It is our view that a trust that is a REIT is subject to the provisions of subsection 108(5) of the Act. Accordingly, rental income from real property distributed by the REIT to its unit holders would lose its character and would be taxed in the hands of the unit holders as income from a property that is an interest in a trust.
We note that the term "earned income" is defined in subsection 146(1) of the Act and is relevant in determining an individual's RRSP deduction limit. Pursuant to subparagraph a(iii) or (e)(ii) of that definition, income or loss arising from the rental of real property would be included in the calculation of earned income. However, given our view that rental income from real property of a trust that is a REIT would be received by its unit holders as income from a property that is an interest in a trust and not as rental income from real property, such income would not be included in the calculation of earned income for RRSP purposes.
While we trust that our comments are of assistance to you, they do not constitute an advance income tax ruling and are, therefore, not binding upon the Department in respect of a particular situation.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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