jmkOttawa is absolutely correct .... this approach by HR management is extremely unfair to holders of units in nonregistered accounts ... which is why I stated earlier that I liquidated our nonreg holding in early 2023 (after seeing the first boondoggle with the Dec. 2022 SD payable in Jan 2023) ... and then opened a holding in my RRSP of similar size.
So ... consider a hypothetical scenario ... a person in the 50% tax bracket holding HR in a non reg account:
1) Receiving $10,000 in non-cash Special Distribution in Jan/25 but on record for 2024 tax year
2) Since classified as 100% OTH income (as per 2022 and 2023 precedents), tax payable in April 2025 is $5,000
3) The ACB of the HR.un holding is increased by the amount of the non-cash SD ... $10,000
4) Which is "available" to "offset" Capital Gains of $10,000 value at some indeterminate future tax year .... being equal to $2,500 of tax reduction at that point (assuming Team Turdo don't change the inclusion rates again)
So .... simple math .... you pay $5,000 increased tax next year ... you "recapture" $2,500 tax in some future year! Not a winning strategy!
Now ... the bigger question ... why does HR management pull this "con job" on its investors??? And contrast this with several other REITs ... such as PRV.un, NXR.un and BTB.un ... which maximize Return of Capital within their annual cash distribution ... thereby greatly enhancing the value of said REITs in a non-reg account????
Only two reasons I can think of:
1) By not ... repeat not ... paying out the full amount of their annual income in cash to unitholders ... they maintain a low payout ratio ... which is arguably highly attractive to analysts and retail investors in the public market ... and ...
2) They can still "follow the rules" governing REITs ... which require them to pay virtually all income out to unitholders ... which they do through this rather unique blend of cash distributions (monthly and a small SD component) and a large annual non-cash SD
So the unitholders receive all of the income the REIT generates .... but only about half of it in cash form .... pay full tax on the whole shebang .... and the REIT can boast a low payout ratio!
At some point, analysts may take note of this con job .... and let us keep our fingers crossed that other REITs don't try copying HR ... cuz if they do ... you can kiss the REIT sector bye-bye!
Cheers!