Pure Multi-Family

An Ontario LP ("REIT LP") that will trade on the TSX Venture Exchange invests in a Maryland corporation (holding US apartment buildings) that qualifies as a US private REIT. Management is not entitled to fees (other than expense reimbursement); but the Managing GP holds Class B units of REIT LP that stay fixed at a 5% interest, notwithstanding subsequent Class A unit issuances to the public, until the market cap reaches $300 million (or there is a successful takeover). No (cross-border) internal debt.

Canadian taxation

The US REIT has six full-time employees. Avoidance of FAPI to REIT LP is desirable because at least some of the distributions paid by the US REIT to REIT LP will be in the form of redemption proceeds for a fraction of an "ROC Share" which will be deemed under draft s. 90(2) to give rise to dividends, which presumably will come out of exempt or pre-acquisition surplus. (These redemption proceeds also are treated as distributions of taxable income for purposes of satisfying the US-REIT tests.)

No SIFT partnership tax as REIT LP does not hold any non-portfolio property. More detailed discussion of Canadian foreign tax credit and s. 98.1 rules than typical. No discussion of "zeroing" of at-risk amount under s. 96(2.3) to subsequent purchasers (to whom the disclosure is not directed).

US taxation

REIT LP does not elect to be a corporation for US purposes and its income from the US REIT is qualifying income, so that it is a partnership for Code purposes. As the shares of the US REIT (looking through REIT LP) are targeted to regularly trade on the TSX Venture Exchange (which includes a test that the 100 largest unitholders hold less than 50% of the units), non-US persons holding less than 5% of REIT LP are not subject to FIRPTA tax and related reporting requirements on sales of their units. The US REIT is not generally subject to corporate income tax, but the non-US unitholders are subject to US withholding tax on their shares of dividends from the US REIT; and as neither REIT LP nor the US REIT should be treated as hybrid entities (each is a partnership or corporation, respectively, in each jurisdiction) qualifying Canadian residents should be eligible for Treaty-reduced rates of withholding (0% for RRSPs and 15% for individuals including TFSAs, provided they hold less than 10%). The US estate tax treatment of the units of REIT LP is unclear.