Question

You are a unitholder in a real estate investment trust. The assets are held within a REIT that earns $5 per unit before taxes. Once it has paid taxes, it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 36%, the personal tax rate on dividend income is 30%, and the personal tax rate on other income is 42%

How much is left for you after all taxes are paid?

Answer 1

After corporate taxes of 36% and personal dividend tax of 30%, the unitholder is left with $2.24 per unit from the original $5 per unit of income in the REIT.

Step-by-step explanation:

The student's question involves calculating the amount of money that a unitholder in a real estate investment trust (REIT) would receive after corporate and personal taxes are applied to dividend income. Initially, the $5 per unit of income will be taxed at the corporate tax rate of 36%, reducing the amount available for distribution to unitholders. The remaining amount, after corporate tax, will then be subject to a personal tax rate of 30% on the dividend income. To determine the final amount left for the unitholder, we start by calculating the after-corporate-tax income, and then we calculate the personal taxes due on this income. Finally, we subtract the personal taxes from the post-corporate-tax income to get the amount left after all taxes are paid.

First, calculate the amount remaining after corporate taxes:

After corporate taxes = $5 - ($5 * 0.36) = $5 - $1.80 = $3.20.

Then, calculate the amount of personal taxes on the dividend:

Personal taxes = $3.20 * 0.30 = $0.96.

Finally, the amount left for the unitholder after all taxes are paid is:

After all taxes = $3.20 - $0.96 = $2.24.