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Updated 2mo ago.
Updated 2mo ago.
A trust is a legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. In Canada, trusts are commonly used for estate planning, asset protection, and tax optimization. Many ETFs and Real Estate Investment Trusts (REITs) are structured as trusts rather than corporations.
When you buy units of XRE.TO (iShares S&P/TSX Capped REIT Index ETF), you are investing in a trust that holds Canadian REITs like RioCan, Canadian Apartment Properties, and Allied Properties. These REITs are themselves trusts — they distribute most of their rental income to unitholders, which allows them to avoid tax at the trust level. On your T3 tax slip, distributions are broken down into income, capital gains, and return of capital.
Understanding trust structures helps with tax planning. Distributions from a trust can include different components (income, capital gains, return of capital) that are taxed differently. For example, return of capital is not immediately taxed but reduces your adjusted cost base. In estate planning, a family trust can enable income splitting and protect assets for future generations.