Brookfield -- summary under Foreign Asset Income Funds and LPs

Basic structure

Brookfield Asset Management Inc. ("Brookfield Inc.) will distribute a portion of the LP units of the newly-formed BPY (a Bermuda LP) to its shareholders as a special dividend. BPY will hold most of its commercial real estate assets (mostly minority interests in various funds and companies located in various jurisdictions) through a subsidiary Bermuda LP ("Property LP").

Brookfield Inc. will hold "Redemption-Exchange Units" of Property LP that are exchangeable into BPY units. After giving effect to such exchange and units of BPY held by it directly, Brookfield Inc. will have a 90% interest in BPY. BPY (which is described as a non-resident partnership) is expected to be listed on the TSX and NYSE.

Fees and management

The Brookfield Inc.-owned and Bermuda-domiciled GP of BPY ("BPY GP") will have sole control of BPY (i.e., no voting rights for the public unitholders of BPY) and is targeting annual distributions equal to 4% of FFO ($1.00 per unit). Brookfield managers are entitled to base management fees of $50 million p.a. plus reimbursements, and the Brookfield Inc.-owned GP of Property LP will be entitled to receive "quarterly equity enhancement distributions equal to 0.3125% of the amount by which [BPY's] total capitalization value exceeds an initial reference value."

As the distribution (referred to as a "spin-off") is a dividend, shareholders will not vote on the transaction (p. 63).

Canadian taxation

The spin-off will not be a distribution of paid-up capital (e.g., under s. 84(2) or 86). Accordingly, Canadian-resident shareholders will be subject to dividend treatment, and non-residents will be subject to Part XIII tax on the distribution - which will be satisfied by the applicable portion of the BPY units being withheld and sold to Broookfield Inc. for cash based on the 5-day VWAP following closing of the spin-off.

BPY income will be allocated to unitholders based on their proportionate share of total distributions received. Includes a discussion of the Foreign Tax Generator Proposals. The withholding tax applicable to various payments made to BPY or Property LP under s. 212(13.1)(b) likely will be reduced to take into account the residency or Treaty status of BPY unitholders.

US taxation

BPY and Property LP will make protective elections to be classified as partnerships for purposes of the Code - and they intend to manage their affairs so that they satisfy the Qualifying Income Exception for being treated as partnerships. They will make s. 754 elections.

The spin-off will be treated as a dividend to US holders based on E&P. A non-US holder generally should not recognize gain or loss upon the spin-off.

BPY is not expected to earn effectively connected income, so that there should be no US-return filing requirements for non-US holders - but distributions to BPY or Property LP of dividends or interest could subject non-US holders to US withholding tax, subject to treaty exemptions or the portfolio interest exemption. One or more of the subsidiaries is likely a PFIC.