General U.S., and Canadian Tax Summary
The following discussion is intended to provide a general explanation of the U.S. and Canadian tax treatment of holding Brookfield Business Partners units. For a more detailed and comprehensive discussion of the U.S. and Canadian tax treatment please refer to Brookfield Business Partners' most recent annual report on form 20-F.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder of Brookfield Business Partners units, and no representation with respect to the U.S. and Canadian income tax consequences to any particular holder is made. Consequently, holders of Brookfield Business Partners units are advised to consult their own tax advisors with respect to their particular circumstances.
Characterization of Brookfield Business Partners for Tax Purposes
Brookfield Business Partners is a Bermuda based limited partnership that is treated as a partnership for U.S. and Canadian tax purposes. Brookfield Business Partners is not a corporation or a trust. Brookfield Business Partners is a publicly traded partnership that does not earn active business income. Instead, Brookfield Business Partners generally earns interest and dividends from subsidiary corporations in various jurisdictions where the business is carried on.
Brookfield Business Partners units qualify for Individual Retirement Accounts (IRAs) . Brookfield Business Partners is a qualified investment for Registered Retirement Saving Plans (RRSPs), deferred profit sharing plans, Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSs) and Tax Free Savings Accounts (TFSAs).
Partnership ID Numbers
Brookfield Business Partners' U.S. tax identification number (Employer Identification Number) is 98-1291692 and its Canadian tax identification number (Business Number) is in 766138895 RZ0001. Brookfield Business Partners does not have a Canadian tax shelter identification number.
Flow-Through Nature of Brookfield Business Partners
As a partnership, Brookfield Business Partners is a so-called "flow through" for U.S. and Canadian tax purposes. That is, Brookfield Business Partners is not subject to tax, instead its taxable income, (determined under U.S. tax rules using the U.S. dollar as its functional currency and under Canadian tax rules using the Canadian dollar as its functional currency) is subject to tax in the hands of its unitholders.
Taxible income for U.S. and Canadian tax purposes is unlikely to be equal because of (i) the different currencies used to compute the taxable income for each jurisdiction and (ii) the difference in the tax rules of the two countries applicable to the income and expenses of Brookfield Business Partners and its subsidiaries for a particular taxation year. Also, taxable income may not be equal to the distributions for a particular period. Brookfield Business Partner's taxable income may be comprised of various types of income and expenses and may include such items as interest income, foreign source dividends, local source dividends, eligible and qualified dividends, and short-term and long-term capital gains.
Generally, we expect Brookfield Business Partners’ taxable income to be mainly comprised of interest income net of management fee expenses.
Communication of Tax Information
After the end of Brookfield Business Partners’ taxation year (December 31), the U.S. and Canadian taxable income of Brookfield Business Partners is determined and allocated to all unitholders that are in turn required to report such income in their respective tax returns. The allocation of U.S. taxable income is communicated using Schedule K-1 (not a Form 1099). The allocation of Canadian taxable income is communicated using Form T5013 (not a Form T5).
All unitholders should receive a Schedule K-1 from Brookfield Business Partners. We are required to use reasonable efforts to send a Schedule K-1 to all unitholders (not just U.S. residents). Consequently, Canadian unitholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian resident unitholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen).
Canadian registered holders of Brookfield Business Partners units will receive a T5013 directly from Brookfield Business Partners. All other Canadian unitholders should receive a T5013 that is produced by their Canadian broker. Brookfield Business Partners voluntarily provides Form T5013 to assist Canadian unitholders with the accurate reporting of taxable income associated with their ownership of Brookfield Business Partners units.
Relationship of Taxable Income to Distributions
The computation of Brookfield Business Partners' annual U.S. and Canadian taxable income for a particular taxation year is independent of (i) the annual accounting income of Brookfield Business Partners; (ii) the annual cash generated by Brookfield Business Partners and (iii) the annual distributions of Brookfield Business Partners. As an investor in Brookfield Business Partners, holders are required to pay tax on their proportionate share of Brookfield Business Partners' taxable income. The U.S. and Canadian taxable income of Brookfield Business Partners is determined using U.S. and Canadian tax rules and will vary from year to year depending on the nature of the income of Brookfield Business Partners and its subsidiaries for the particular taxation year.
Tax Treatment of Distributions
Distributions received by Brookfield Business Partners' unitholders are not directly taxable in and of themselves. Distributions received reduce the tax cost of Brookfield Business Partners units. The distributions Brookfield Business Partners pays do not have a particular character or composition.
Withholding Tax Treatment of Distributions
The income Brookfield Business Partners earns from underlying subsidiaries includes dividends and interest paid by subsidiaries in jurisdictions that may levy withholding tax. Since Brookfield Business Partners is a "flow-through" for U.S. and Canadian income tax purposes, a portion of the income may be subject to withholding taxes levied by jurisdictions such as Canada and the U.S. The rate of withholding tax varies, amongst other factors, depending on a holder’s country of tax residence, type of ownership account, and whether holders have provided their broker (or Brookfield Business Partners’ transfer agent in the case of registered unitholders) with the appropriate Internal Revenue Service (IRS) Form and Canada Revenue Agency (CRA) Form. The type of documentation for U.S. withholding tax purposes will differ depending on a holder’s tax profile for U.S. tax purposes. We encourage holders to submit the appropriate IRS Form and CRA Form to their broker (or Brookfield Business Partners’ transfer agent in the case of registered unitholders) so their account can be (and will continue to be) certified and the most appropriate rates of withholding can be applied to distributions.
Please click here to download the 2016 Distribution – Breakdown for U.S. and Canadian Witholding Tax Purposes
Computation of Tax Cost
For U.S. and Canadian residents, in general, a unitholder's tax cost of his/her Brookfield Business Partners units should equal the sum of (i) the amount paid to acquire the units and (ii) the net taxable income allocated to the unitholder, minus the cash distributions received. If a Canadian unitholder receives distributions in U.S. dollars, the U.S. dollar distributions must be converted to Canadian dollar before reducing the tax cost of Brookfield Business Partners units for Canadian tax purposes. Brookfield Business Partners does not prescribe a particular foreign exchange rate that unitholders should use to make such conversions. Unitholders and/or their brokers would generally be expected to use the conversion rate on the date of receipt of the distribution.
The schedules distributed with Schedule K-1 compute the tax cost of Brookfield Business Partners units for U.S. residents.
For Canadian residents, the tax cost of units is generally determined in Canadian dollars so all three components should be determined in Canadian dollars. Brookfield Business Partners does not have sufficient information to determine the tax cost of units for each individual holder. Depending upon the particular taxation year, the T5013 will report various sources of income and expenses in a number of boxes on the form. The net taxable income allocated is the sum of the various income and expenses. Unitholders are obligated to accurately compute the tax cost of their Brookfield Business Partners units.
Other Tax Matters
Effectively Connected Income (ECI)
Brookfield Business Partners has not and is not expected to generate effectively connected income. Brookfield Business Partners' U.S. operations are carried out through its wholly owned U.S. resident subsidiary.
Unrelated Business Taxable Income (UBTI)
Brookfield Business Partners has not and is not expected to generate UBTI. UBTI is relevant to U.S. tax exempt entities.
Foreign Investment Real Property Tax Act (FIRPTA)
Non-U.S investors that own 5% or less of Brookfield Business Partners publicly traded units should not be subject to FIRPTA taxation on a disposition of their units. Investors that own more than 5% of Brookfield Business Partners publicly traded units may be subject to FIRPTA taxation on a disposition of their units.
Regulated Investment Corporations (RICs)
The 25% limitation imposed on the ownership of master limited partnerships (MLPs, technically “qualifying PTPs”) by regulated investment corporations has not been relevant to units of Brookfield Business Partners since Brookfield Business Partners is not a MLP (not a “qualifying PTP”) as defined for U.S. tax purposes because more than 90% of its gross income on an annual basis has been investment income. It is anticipated that more than 90% of Brookfield Business Partners’ income on an annual basis will continue to be investment income.
Specified Foreign Property
For the purpose of reporting foreign property by Canadian investors, pursuant to section 233.3 of the Canadian Income Tax Act, Brookfield Business Partners is not a specified foreign property and therefore does not need to be reported on Form T1135 – Foreign Income Verification Statement.
Tax Questions and Answers