ICM unit offering provides investors choice of flow-through or non-flow through US tax treatment

ICM, which is a newly-formed Alberta unit trust, is making successive offerings of various classes of units (at escalating prices) until the earlier of raising $100 million and the end of 2017. It will invest both directly in a US LP that will be a U.S. private REIT and also indirectly, through a Canadian subsidiary LP of the trust (the "Partnership"). The trust is intended to be a partnership for Code purposes. Most of the underlying real estate properties will be U.S. commercial and residential rental properties held through interests in lower-tier LPs of the U.S. private REIT, but some Canadian rental properties will be held through an interest of the Partnership in a Canadian LP.

The disclosure states cryptically that for three of the classes of trust units, the holders “will receive returns that are net of U.S. corporate taxes,” while holders of the other three classes “will be subject to U.S. tax.” The U.S. tax disclosure deals in generalities rather than explaining this, but presumably it is contemplated that investors can choose to achieve flow-through treatment for Code purposes given that the Trust is a partnership for Code purposes, but perhaps at the cost of having to file U.S. returns - and perhaps those classes of units which instead are designated to indirectly bear corporate tax will track the US private REIT investment held through the Partnership (which could check the box).

The Trust units will not be listed, but it nonetheless is assumed that it will qualify as a mutual fund trust for ITA purposes. The units are redeemable every quarter end (provided 60 days’ advance notice is given, and with a 30-day delay before receiving the redemption proceeds) at 90% of NAV for the first year, 95% thereof in the 2nd and 3rd year, and 100% thereafter – but with redemptions in any quarter being capped at 10% of the units and with redemption proceeds payable in the discretion of the Trustee in redemption notes (or other assets). The same corporation is the Trust trustee and the GP of the subsidiary Canadian LP.

Neal Armstrong. Summary of ICM Offering Memorandum under Offerings – REIT and LP offerings – Cross-Border Unlisted Trust.