A Starlight LP realized and distributed gains on US rental properties through use of partnerships

The Starlight U.S. Multi-Family (No. 1) Value-Add Fund is an Ontario LP established in June 2017 that was targeted to stay in existence for three years, during which time it was to acquire US rental apartment buildings, undertake “high return, light value-add capital expenditures” and then sell the buildings for a price reflecting the resulting increased rents. That now has occurred.

In order to avoid the realization of foreign accrual property income gains, and instead realize (non-FAPI) capital gains that could be integrated with capital gains treatment to the Fund unitholders, the gains were not realized within the corporate subsidiary (a US private REIT) and instead were realized on internal transfers by subsidiary LPs. In order to get the proper basis adjustments for the distribution of such capital gains, various tiers of partnerships were wound-up on a bottom-up basis as a part of the distribution of proceeds, and with the net sales proceeds ultimately distributed in redemption of the Fund units.

FIRPTA of course was recognized on the gains on the sales.

Neal Armstrong. Summary of Starlight U.S. Multi-Family (No. 1) Value-Add Fund Circular under Other – Asset Purchases.