Taxes on your RealT investments
For compliant practices, RealT can not provide tax advice, as we are not licensed to provide such individualized guidance. With investors around the globe, RealT suggests each token holder contact their individual tax preparer in their country of residency.
However, what we can share is the corporate tax actions we have taken on behalf of your investments here in the United States.
Under the US taxes code, please see the below information:
Return of Capital: Distributions that qualify as a return of capital aren't dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the adjusted cost basis of your stock. For information on basis of assets, refer to Topic No. 703. A distribution generally qualifies as a return of capital if the corporation making the distribution doesn't have any accumulated or current year earnings and profits. Once the adjusted cost basis of your stock has been reduced to zero, any further non dividend distribution is a taxable capital gain that you report on Form 8949, Sales and Other Dispositions of Capital Assets and Schedule D (Form 1040), Capital Gains and Losses. (source IRS website)
Dividends: Dividends are distributions of property a corporation may pay you if you own stock in that corporation. Corporations pay most dividends in cash. However, they may also pay them as stock of another corporation or as any other property. You also may receive distributions through your interest in a partnership, an estate, a trust, a subchapter S corporation, or from an association that's taxable as a corporation. A shareholder of a corporation may be deemed to receive a dividend if the corporation pays the debt of its shareholder, the shareholder receives services from the corporation, or the shareholder is allowed the use of the corporation's property without adequate reimbursement to the corporation. Additionally, a shareholder that provides services to a corporation may be deemed to receive a dividend if the corporation pays the shareholder service-provider in excess of what it would pay a third party for the same services. A shareholder may also receive distributions such as additional stock or stock rights in the distributing corporation; such distributions may or may not qualify as dividends. (source IRS website)
At the end of each year after accounting entries are posted to our software and reviewed by our accountant, RealT will be preparing Year-end Summary reports showing your holdings and distribution totals for the prior year. This document will be posted around January/February in your RealT account. And in May, you will have access to a second document, your Year-End Tax Report, that will show you the categorization of each property (Dividends or Return of Capital).
Regarding withholding taxes as it relates to foreign investors, RealT's tax accountants have filed with the IRS for a de minimis exemption relating to withholding. Therefore, no withholding taxes are being withheld or paid on your behalf. A De minimis exemption means that the tax liabilities are small and therefore, it would be administratively burdensome for each individual to prepare a US tax filing. Based on this exemption, no withholding is required for payment.
This may change in the future and we will keep you informed of any changes as they occur.
Are these "return on capital" payments considered repayments of the initial capital that was invested or lent to the company?
The return of capital transactions only apply to RealToken equity share purchases and can be considered repayments of the initial capital invested.
Alternatively, are these payments considered as interest income or other forms of earnings on the capital provided before transitioning to regular dividend distributions?
If a purchase of a note has been made by a tokenholder, the distributions are interest income.
However, what we can share is the corporate tax actions we have taken on behalf of your investments here in the United States.
Under the US taxes code, please see the below information:
Return of Capital: Distributions that qualify as a return of capital aren't dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the adjusted cost basis of your stock. For information on basis of assets, refer to Topic No. 703. A distribution generally qualifies as a return of capital if the corporation making the distribution doesn't have any accumulated or current year earnings and profits. Once the adjusted cost basis of your stock has been reduced to zero, any further non dividend distribution is a taxable capital gain that you report on Form 8949, Sales and Other Dispositions of Capital Assets and Schedule D (Form 1040), Capital Gains and Losses. (source IRS website)
Dividends: Dividends are distributions of property a corporation may pay you if you own stock in that corporation. Corporations pay most dividends in cash. However, they may also pay them as stock of another corporation or as any other property. You also may receive distributions through your interest in a partnership, an estate, a trust, a subchapter S corporation, or from an association that's taxable as a corporation. A shareholder of a corporation may be deemed to receive a dividend if the corporation pays the debt of its shareholder, the shareholder receives services from the corporation, or the shareholder is allowed the use of the corporation's property without adequate reimbursement to the corporation. Additionally, a shareholder that provides services to a corporation may be deemed to receive a dividend if the corporation pays the shareholder service-provider in excess of what it would pay a third party for the same services. A shareholder may also receive distributions such as additional stock or stock rights in the distributing corporation; such distributions may or may not qualify as dividends. (source IRS website)
At the end of each year after accounting entries are posted to our software and reviewed by our accountant, RealT will be preparing Year-end Summary reports showing your holdings and distribution totals for the prior year. This document will be posted around January/February in your RealT account. And in May, you will have access to a second document, your Year-End Tax Report, that will show you the categorization of each property (Dividends or Return of Capital).
Regarding withholding taxes as it relates to foreign investors, RealT's tax accountants have filed with the IRS for a de minimis exemption relating to withholding. Therefore, no withholding taxes are being withheld or paid on your behalf. A De minimis exemption means that the tax liabilities are small and therefore, it would be administratively burdensome for each individual to prepare a US tax filing. Based on this exemption, no withholding is required for payment.
This may change in the future and we will keep you informed of any changes as they occur.
Additionnal questions
Are these "return on capital" payments considered repayments of the initial capital that was invested or lent to the company?
The return of capital transactions only apply to RealToken equity share purchases and can be considered repayments of the initial capital invested.
Alternatively, are these payments considered as interest income or other forms of earnings on the capital provided before transitioning to regular dividend distributions?
If a purchase of a note has been made by a tokenholder, the distributions are interest income.
Updated on: 26/06/2024