The REIT intends to make monthly distributions on the 15th of each month, or the closest following business day.
The REIT estimates that, of the monthly cash distributions to be made by the REIT to Unitholders, approximately 100% in 2020 will be tax deferred by reason of the REIT’s ability to claim capital cost allowance and certain other deductions. Such estimate is based on the facts set out in this short form prospectus, the financial forecast and related assumptions, the provisions of the Tax Act in force at the date hereof, current publicly available published administrative policies and assessing practices of the CRA and the Tax Proposals (as defined herein). The adjusted cost base of Units held by a Unitholder will generally be reduced by such non-taxable portion of distributions made to the Unitholder (other than the non-taxable portion of certain capital gains). A Unitholder will generally realize a capital gain to the extent that the adjusted cost base of the Unitholder’s Units would otherwise be a negative amount, notwithstanding that the Unitholder has not sold any Units. The composition of REIT distributions for tax purposes may change over time thus affecting the after-tax return to a Unitholder.
As a real estate investment trust, PROREIT is structured to achieve tax efficiency for its investors.
REITs are not generally required to pay Canadian income tax if they distribute all of their taxable income on an annual basis to Unitholders. PROREIT, in accordance with its Declaration of Trust, distributes a percentage of its cash flow, which exceeds taxable income due in part to capital cost allowance (depreciation) deductions for tax purposes. This excess is generally not taxed currently in the Unitholders’ hands, but is treated as a return of capital and the tax is deferred until the units are sold.
In general, when a Unitholder disposes of a REIT unit it gives rise to a capital gain (or loss) equal to the amount by which the proceeds, net of disposition costs, exceeds (or is less than) the tax cost of the unit. Under the current tax rules in Canada, the Unitholder need only include one-half of the capital gain in his/her taxable income.