Q: Hello, can you please confirm that REITs should be held in registered accounts (RSP, LIRA, TFSA) whenever possible considering their tax treatment (distribution treated the same as interest income in my understanding). Thank you.
5i Research Answer:
Generally, yes, because REIT income is typically taxed as regular income. However, there can be exceptions. A REIT that pays out a large portion of its distribution as return of capital could be better in a non-reg account, depending on the amount of ROC and tax rate. ROC lowers the ACB of the REIT for taxes, and can defer taxes and also shift the tax burden to capital gains. But for most REITs, the ROC portion is not typically large enough to make a material difference vs a registered account.