CMFAS M8 REITs & Property Funds question: REIT's tax transparency

CMFAS M8REITs & Property Funds

A REIT's tax transparency is designed to avoid a particular problem faced by an ordinary company that pays dividends. What is that problem?

A Currency mismatch between rents earned overseas and distributions paid in local currency
B Double taxation: income taxed at the entity level, then again in investors' hands
C Refinancing risk on large loans that mature just as credit markets tighten
D Over-concentration of the portfolio in a single anchor tenant or sector

Show the answer and explanation

Answer: B. Double taxation: income taxed at the entity level, then again in investors' hands

Income distributed by a REIT is typically not taxed again at the trust level, avoiding the double taxation that can apply to an ordinary company's dividends (taxed at the company and again for the shareholder).

Common mistake

Confusing the tax-transparency benefit with an unrelated currency, refinancing or concentration issue.

Practise more M8 REITs & Property Funds questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: REITs & Property Funds CMFAS M8practice questions & mock exams

CMFAS M8 REITs & Property Funds question: REIT's tax transparency

Answer: B. Double taxation: income taxed at the entity level, then again in investors' hands

Common mistake

Related CMFAS M8 questions

CMFAS M8 REITs & Property Funds question: REIT's tax transparency

Answer: B. Double taxation: income taxed at the entity level, then again in investors' hands

Common mistake

Related CMFAS M8 questions