The Share Swap Program

Swap your building for a share of the portfolio.

If you own Canadian property and the time has come to stop looking after it, there is a route other than putting it on the market. Bring the property to Tawakkul Real Estate Investment Trust and take units of the Trust instead of cash — swapping one building for a share of a portfolio, and deferring the tax you would otherwise pay in a single year on the way out.

It does not suit everybody, and we will tell you when it does not.

What you receive is units of the Trust, valued at net asset value against an independent appraisal of your property. They are a private security: there is no public market, and you exit through the redemption policy rather than by selling to somebody else. That trade-off — a building you could list next month for a portfolio you hold for years — is the decision, and it is covered properly further down.

Who this is actually for

The next generation does not want it

Your children have careers. Your grandchildren are not going to take a call at eleven at night about a flooded bathroom. The building has been good to your family and there is nobody to hand it to.

Swap it for units of the Trust. Your family keeps an interest in real property — across a portfolio rather than one roof — and nobody has to take the eleven o'clock call.

You have had enough of being a landlord

The tenant who does not pay. The hearing date months away. The furnace in February. Nobody starts out planning to spend their seventies at a tribunal.

Contributing the property ends the management entirely. You stop being an owner and become an investor, and that is the point rather than a side effect.

You inherited something in poor repair

A house that has not been touched since the 1980s, or a building with three vacant units and a roof that needs doing. You did not choose it and you cannot afford to fix it.

Bring it to us. Whether an exchange or a sale serves you better depends on what you paid, what is owed and how you came to own it — and that is a fifteen-minute conversation, not a guess.

The site is bigger than you can develop

You own land that is worth far more built than it is empty, and building it means rezoning, financing, consultants and five years of your life.

This is the case the programme was built for. You bring the land, we bring the capital and the execution, and you hold units in the Trust that develops it — without becoming a developer.

The heirs cannot agree

Five children inherited one house. Under the Islamic shares it divides into fractions. One wants to live in it, two want the money, and nobody has the cash to buy the others out.

A building cannot be divided. Units can. This is the single problem the structure solves most cleanly — though every heir has to want it, and each one is assessed separately.

Why bring it to us

No project is too big, and none is too small.

Tawakkul is built to take Canadian retirement and pension capital into real property, with a federally regulated trust company as trustee, an independent auditor, an independent administrator and a registered dealer between the money and the manager. What that buys a property owner is execution: the ability to take a site through rezoning, financing and construction, and the balance sheet to do it without asking you to underwrite any of it.

Everything in the structure is Shariah-compliant. If that matters to you, it is not an afterthought here.

Tell us about your property Or call 905 949 9119

What you receive

Units of Tawakkul Real Estate Investment Trust, valued at net asset value, against an independent appraisal of your property. You stop owning one building and start owning a share of a portfolio — with a federally regulated trust company as trustee, an independent auditor, an independent administrator and a registered dealer standing behind it.

Underneath the Trust sit the Tawakkul partnerships, which are where property is actually held and where your building goes. That layer exists for tax and liability reasons and it is the reason a contribution can be made on a deferred basis at all. You do not have to think about it — the Trust is what you are joining, and your dealing representative will walk you through the mechanics before you sign anything.

One thing to hold on to: this defers tax, it does not remove it. The gain crystallises later, when you eventually dispose of what you received. What you are buying is control over which year that happens in, which for most people is worth a great deal. It is not the same as never paying, and anyone who tells you otherwise is selling you something.

Three things worth knowing before you call

1Whether you actually have a gain

If you inherited the property from a parent, the tax rules almost certainly reset its cost to what it was worth on the day they died. You may have very little accrued gain, in which case a straight sale costs you little tax and a deferral gives you nothing worth having.

The exception is inheriting from a spouse. That transfer usually keeps the original cost rather than resetting it — so a widow holding a building at her late husband's 1974 cost may have an enormous latent gain, and she is the person this helps most.

2Whether there is a mortgage on it

If the partnership takes on your mortgage, the tax rules treat that as money paid to you even though you never see a dollar of it. It can trigger a tax bill on a transaction in which you received no cash — and where the building has been depreciated for decades, the worst version of that is taxed as ordinary income rather than as a capital gain.

There is a second reason, and the two agree. The fund that carries no debt cannot take on an interest-bearing mortgage without ceasing to be what it is. In almost every case the mortgage should be discharged before the property comes across. The tax rule and the Shariah rule point the same way, which is unusual and worth noticing.

3Whether you can live without the money

You cannot sell what you would receive. There is no market for it, redemption is capped and discretionary, and the properties are in development, so the Asset Manager does not anticipate distributions for the first one to five years.

If you would need to draw on the value within that window, or if this building is most of what you own, the answer is probably no — and a registered dealing representative at Drake Financial is required to reach that conclusion independently before anything proceeds.

How it works, step by step

You tell us about the propertyThe form below. Ten minutes, no documents needed yet, and no obligation of any kind. Four of the questions are there because the answers decide whether this is even worth your time — we would rather find that out now than after you have paid for an appraisal.
We tell you honestly whether it fitsWithin two business days, from somebody who does these. If a straight sale would serve you better than an exchange, we will say so — we would rather have the relationship than the transaction.
An independent appraiser values itNot us. A member of a professional appraisal body, instructed independently, valuing the property as it stands today rather than as it might be once something is built. You are entitled to instruct a second appraiser of your own, and the partnership pays for it.
You get advice that is not oursYour own accountant on the tax, and a dealing representative at Drake Financial — the registered dealer — on whether taking units suits your circumstances at all. Drake can say no, and if it does, this does not proceed.
The documents, and the electionA contribution agreement, and a joint tax election filed with the Canada Revenue Agency. The election is what defers the gain, and it has a deadline that cannot be missed.
ClosingTitle transfers to the partnership. You are issued units. You stop being a landlord that day.

On valuation, since it is the obvious place for this to go wrong. Both sides of the exchange are numbers — what your property is worth, and what a unit is worth — and if the same party set both, you would be right not to trust it. So: the property is valued by an independent qualified appraiser, as it stands rather than as it might be once built; you may instruct a second appraiser and the partnership pays for it; and the exchange ratio is fixed in the agreement you sign rather than determined afterwards.

What you give up

Stated plainly, because you will not find these on the front of most brochures.

Control. You stop being an owner. You cannot decide the rents, choose the contractor or take part in running the business — and in a limited partnership that is not merely a practical matter: a limited partner who takes part in the control of the business can lose the liability protection that is the whole point of being one.

Liquidity. Covered above and worth repeating. This is the risk most likely to matter to you and least likely to be understood at the time.

Fees. Your building would pay management, property management and development fees to the manager's affiliates for as long as it is held. Ask us to show you the fee stack in dollars against your own building's actual revenue rather than as percentages. We will.

Simplicity at your death. Tax rules deem a disposition of your units when you die, at a value the manager determines, on something nobody can sell, with the bill due within months. That is a real problem and it is the same problem the programme claims to solve, moved forward one generation. We would rather design around it with you — a partial cash component, or a right of redemption on death — than let your family discover it.

No obligation, and no documents needed yet

Tell us about your property.

Ten minutes. Somebody who does these will read it and come back to you within two business days. If selling would serve you better, that is what they will say.

Would rather talk than type? Book fifteen minutes, or call 905 949 9119 and speak to a person.

First name

Last name

Email address

Telephone

The property

Where is it

What sort of property

Roughly what is it worth today

A rough idea is fine. An independent appraiser sets the real number later, and it is not us.

How is it held

The four that decide it

These are the questions that determine whether an exchange helps you or does nothing for you. We ask them first because the honest answer is sometimes that you should sell instead, and we would rather say that now.

How did you come to own it?

This matters more than any other question on the form. When someone dies, the tax rules usually reset the cost of their property to what it was worth on that day — so if you inherited from a parent, you may have very little gain and very little tax to defer. Property inherited from a spouse is the exception: it usually keeps the original cost, which can mean a very large gain.

Is there a mortgage on it?

A mortgage the partnership takes on counts as money paid to you, even though you never see it — which can trigger tax on a transaction where you received no cash. A conventional mortgage is also interest-bearing, so it cannot come into the fund that carries no debt. In almost every case the mortgage should be discharged first. We will talk you through what that involves.

Roughly what did you pay for it, or what was it worth when you got it? optional

The gap between this and today's value is the gain. If the gap is small, there is little to defer.

Do you live in any part of it?

A home you live in is usually exempt from tax when sold. Contributing it can give that exemption up permanently, so we treat this case very carefully.

What you want

Cash, units, or a mix

When

Would you want any of the units to go to somebody other than the owner — children, a family trust, a company? optional

Units can only be issued to the owner of the property under the exemption we would ordinarily use. Anything else is possible but needs a different route, and it is much easier to plan for at the start than to fix at the end.

Anything else we should know? optional

You may also send me occasional updates about Tawakkul. Stop them from any message.

Nothing here commits you to anything. It is an enquiry, not an application and not an offer. No property changes hands and no units are issued unless and until you have taken your own tax advice, an independent appraiser has valued the property, and a registered dealing representative at Drake Financial Ltd. has determined that taking units suits your circumstances.

Is this a 1031 exchange?

No, and Canada has no equivalent. The American rule lets an investor sell a property and buy another without recognising the gain. Nothing in Canadian tax law does that for a voluntary sale of a rental property. What Canada has instead are rollovers into a corporation or a partnership, which is what this is. It is worth understanding the difference before anyone uses the American word at you.

Will I pay no tax?

You will very likely pay less tax now and more later. The gain is deferred, not removed, and it crystallises when you eventually exchange or dispose of what you received. Treat any description of this as tax-free as a reason to end the conversation.

How much is my property worth?

An independent appraiser decides that, not us, and not you. If our view and the appraisal differ materially, we do not proceed on our number.

What if I only want to do part of it?

Common, and often sensible. Taking part cash and part units solves two problems at once: it gives you money to live on, and it stops the whole of your net worth sitting in one illiquid holding. It does mean some of the gain is taxed now rather than later. Most sensible arrangements here are a mix.

Can I get my money out later?

Only through redemption, which is capped across all holders, subject to a fee in the early years, and at the manager's discretion. Assume you cannot. If that assumption makes this unworkable for you, it is the correct assumption to act on.

Do I have to be Muslim?

No. The structure is Shariah-compliant because that is how it is built, not because of who may participate. Owners of any background are welcome.

What does it cost me to find out?

Nothing to enquire, and nothing to be told whether it fits. If it proceeds, there are real costs — appraisal, your own legal and accounting advice, land transfer tax on the conveyance, and the partnership's own costs. We will set them out in writing before you commit to any of them. Land transfer tax in particular is a cash cost with no relief available, and in Toronto it is charged twice.

Who decides whether I can do this?

Drake Financial Ltd., the registered exempt market dealer, has to determine that acquiring these units suits your circumstances — and where a single building is most of somebody's wealth, that determination is a demanding one. Tawakkul does not make it and cannot overrule it.

I have a corporation that owns the building. Does that change things?

Yes, in both directions. Transferring the shares of the company rather than the land avoids land transfer tax, which is a real saving — but a share exchange of that kind does not defer your gain, so you would get the liquidity relief without the tax relief. Which is better depends on your numbers, and it is a question for your own accountant.

Can the units go to my children instead of me?

Not automatically. The route we would ordinarily use requires the units to be issued to the person who owned the property. Directing them elsewhere is possible but needs a different arrangement, and it is far easier to plan at the beginning. Say so on the form.

Or invest in it the ordinary way.

Four questions to see what applies to you.

Start your subscription Send me the Offering Memorandum

Or book fifteen minutes, or call 905 949 9119 and we will walk you through it.

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