A REIT (real estate investment trust) lets you own a share of a portfolio of income-producing buildings by buying units on the stock exchange. This page covers how Canadian REITs work, the property sectors, how distributions are taxed, the metrics used to judge a REIT, the risks, and how to buy them. It is part of WealthNorth’s guide to real estate investing in Canada; other ways to get real estate exposure without owning property are compared in investing in real estate without buying property.
How REITs Work
A REIT operates like a company that owns and manages real estate:
- The REIT raises capital by selling units on the TSX
- It buys or develops income-producing properties
- Tenants pay rent
- After expenses and debt payments, the REIT distributes income to unitholders
- Canadian REITs distribute most of their taxable income, since income a trust keeps is taxed in the trust
Many Canadian REITs pay monthly distributions, which suits investors who want regular income.
Types of REITs in Canada
By property sector
| REIT type | What they own | What drives results |
|---|---|---|
| Residential | Apartment buildings | Rent growth, vacancy and provincial rent rules |
| Industrial | Warehouses, logistics centres | Demand for distribution space |
| Retail | Shopping centres, grocery-anchored plazas | Tenant health and consumer spending |
| Office | Downtown and suburban offices | Occupancy, which remote work has pressured |
| Healthcare and seniors’ housing | Medical offices, retirement residences | Aging population, operating costs |
| Diversified | A mix of property types | Depends on the mix |
Distribution yields differ by sector and move with unit prices; a high yield can signal that the market expects a cut.
Owning buildings vs lending on them
The REITs held by Canadian REIT index ETFs own and operate properties (equity REITs). Pooled lending secured by real estate is a different structure: in Canada it can be set up as a mortgage investment corporation (MIC), whose shares can be qualified investments for a TFSA or RRSP. MICs are covered in investing in real estate without buying property.
Individual Canadian REITs
Individual REIT picks by sector, with their tickers and what each owns, are covered in the best Canadian REITs in the stocks hub. REITs are bought, merged, taken private and renamed from time to time, so check that a trust still trades under the name and ticker you have before buying.
How REIT distributions are taxed
In a non-registered account, a REIT distribution is not a simple dividend. The T3 slip splits each year’s distributions into parts that are taxed differently:
| Component | Tax treatment |
|---|---|
| Other income | Fully taxable at your marginal rate |
| Capital gains | 50% included in income |
| Eligible dividends (occasionally) | Grossed up, with the dividend tax credit |
| Foreign income | Fully taxable, with a credit for foreign tax paid |
| Return of capital | A return of capital isn't taxed in the year you receive it. It reduces the adjusted cost base (ACB) of your units. (how it works) |
The mix differs from one REIT to another and from year to year.
Best Account for REITs
| Account | Tax Advantage |
|---|---|
| TFSA | Distributions are completely tax-free |
| RRSP | Tax-deferred; no annual tax slips to worry about |
| Non-registered | Complex; must track ACB for return of capital |
Holding REITs in a TFSA or RRSP removes the annual tax and the cost-base tracking.
How to Evaluate a REIT
| Metric | What It Tells You | What to look at |
|---|---|---|
| FFO (Funds from Operations) | Cash flow from operations | The trend over several years |
| AFFO (Adjusted FFO) | FFO minus maintenance capital | The trend over several years |
| Payout ratio (AFFO) | Distribution ÷ AFFO | Room below 100%; above 100%, distributions exceed what operations generate |
| Occupancy rate | % of space leased | The trend, compared with REITs in the same sector |
| NAV (Net Asset Value) | Value of properties per unit | Unit price relative to NAV |
| Debt-to-assets | Leverage level | Compared with similar REITs |
| Weighted average lease term | How long tenants are locked in | Longer terms mean more predictable rent |
A payout ratio above 100% means the REIT is paying out more than its operations generate, which cannot continue indefinitely without borrowing, selling assets or cutting the distribution.
Compared with owning a building
Owning REIT units means no tenants, no repairs and no mortgage in your name, and you can sell on any trading day; the cost is that you don’t control the properties or borrow against them. Side by side on money needed, returns, costs, taxes and risk, the two are compared in REIT vs rental property.
How to Invest in Canadian REITs
Option 1: Buy Individual REITs
- Open a brokerage account (Wealthsimple, Questrade, etc.)
- Search for the REIT by ticker (e.g., CAR.UN)
- Place a buy order
- Receive distributions in your account (monthly for many REITs)
Option 2: buy a REIT ETF
A REIT ETF holds a basket of Canadian REITs in one fund, so a single purchase spreads your money across every landlord in the fund. The main funds, with their fees, holdings, weighting method and yields, are compared in REIT ETFs in Canada.
REIT Risks
| Risk | Explanation |
|---|---|
| Interest rate risk | Rising rates raise REITs’ borrowing costs and make their yields less attractive next to bonds, which can push unit prices down |
| Sector concentration | Each property sector faces its own demand trends, such as remote work for offices and online shopping for retail |
| Economic downturn | Higher vacancy, lower rents |
| Distribution cuts | If cash flow drops, REITs may reduce payouts |
| Leverage | REITs borrow to buy property, which amplifies gains and losses |
| Liquidity illusion | REIT unit prices can be volatile even though underlying properties are stable |
REITs in a wider portfolio
Broad Canadian and global equity ETFs already hold some REITs, and anyone who owns a home or a rental already has a large real estate position, so a separate REIT holding adds to that exposure. How much to hold is part of overall asset allocation rather than a fixed rule.
Related resources
Sources
The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and October 1, 2026. How we check facts.
- BlackRock iShares: Tax Information Centre - Distributions & Tax FAQs | BlackRock Canada
- Canada Revenue Agency: Capital Gains – 2025
- Canada Revenue Agency: Tax treatment of mutual funds