2020-0845011E5 Real estate investment trust - subsection 122.1(1)

Principal Issues: If an entity does not hold any non-portfolio property, can the entity meet the test in paragraph (a) of the definition of REIT in subsection 122.1(1)?

Position: Yes.

Reasons: See below.

Author: Robinson, Katie
Section: 122.1

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                                                                                             2020-084501
                                                                                             K. Robinson

January 13, 2022

Dear XXXXXXXXXX:

Re: Technical Interpretation Request 
       Paragraph (a) of the definition of REIT in subsection 122.1(1)

We are writing in response to your email of April 1, 2020, regarding paragraph (a) of the definition of real estate investment trust (“REIT”) in subsection 122.1(1) of the Income Tax Act Canada (the “Act”).

In your email, you describe a structure which involves a trust that currently qualifies as a REIT that holds units of a Canadian limited partnership. Additionally, you note that the partnership holds several capital properties including all of the shares of the capital stock of a subsidiary company resident in the XXXXXXXXXX (“XXXXXXXXXXCo”). You specify that XXXXXXXXXXCo does not hold any non-portfolio property, as defined in subsection 122.1(1) of the Act.

You indicate that you are currently testing whether the trust continues to be a REIT under various scenarios and you are at the stage of your analysis where you are examining each property held by the partnership.

Specifically, you are trying to determine whether the shares of XXXXXXXXXXCo can be considered real or immovable property of the partnership as defined in subsection 122.1(1). As such, you have asked whether an entity, such as XXXXXXXXXXCo, can satisfy the condition in paragraph (a) of the definition of REIT in subsection 122.1(1) of the Act, if the particular entity does not hold any non-portfolio property.

Our comments

This technical interpretation provides general comments about the provisions of the Act and the Income Tax Regulations. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R11, Advance Income Tax Rulings and Technical Interpretations.

Real or immovable property of a taxpayer, as defined in subsection 122.1(1) of the Act, includes inter alia, a security held by the taxpayer, if the security is a security of a trust that satisfies (or of any other entity that would, if it were a trust, satisfy) the conditions set out in paragraphs (a) to (d) of the definition of REIT in subsection 122.1(1) of the Act.

The condition set out in paragraph (a) of the definition of REIT requires that at each time in the taxation year the total fair market value at that time of all non-portfolio properties that are qualified REIT properties held by the trust is at least 90% of the total fair market value at that time of all non-portfolio properties held by the trust.

In our view, the fact that a particular entity does not hold any non-portfolio property does not preclude the entity from satisfying the condition set out in paragraph (a) of the REIT definition.

We trust that our comments will be of assistance.

Yours truly,

Marina Panourgias, CPA, CA, TEP
Manager, Trust Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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