Brookfield Infrastructure Partners L.p. (BIP) is a publicly traded partnership that often raises questions regarding its structure and the tax implications for its investors, particularly in Canada. It’s essential for unitholders and potential investors to understand whether Brookfield Infrastructure Partners is a limited partnership, corporation, or trust, and how this classification affects their taxes. This article aims to clarify these points and provide a comprehensive guide to the tax aspects of investing in Brookfield Infrastructure Partners L.P., ensuring you have a clear understanding of your tax obligations and benefits.
Demystifying Brookfield Infrastructure Partners L.P.’s Structure
One of the first questions many investors have is about the fundamental structure of Brookfield Infrastructure Partners. It’s crucial to establish right away that Brookfield Infrastructure Partners is a limited partnership based in Bermuda. Crucially, it is not a corporation or a trust. This partnership structure is key to understanding its tax treatment, especially for Canadian investors. For Canadian tax purposes, Brookfield Infrastructure Partners is also treated as a partnership. This distinction is vital because partnerships have different tax reporting requirements compared to corporations or trusts.
Decoding the Tax Nature of Income from Brookfield Infrastructure Partners
Brookfield Infrastructure Partners operates as a publicly traded partnership, but it’s important to understand the nature of the income it generates. Unlike businesses that earn active business income, Brookfield Infrastructure Partners functions as an investment entity. Its income is derived from various sources, including interest, dividends, and return of capital, received from its subsidiary corporations operating across different jurisdictions. These subsidiaries are the entities that conduct active business operations.
The specific mix of interest, dividends, and return of capital allocated to unitholders can fluctuate. This variability depends on the performance and financial results of the particular business units from which the funds originate. Furthermore, the source of these funds plays a significant role in determining whether any portion of the distributions is subject to withholding tax. Understanding these nuances is crucial for accurate tax planning.
Brookfield Infrastructure Partners and Tax-Deferred Plans in Canada
For Canadian investors looking to maximize their tax advantages, it’s good news that Brookfield Infrastructure Partners is considered a qualified investment for various registered tax-deferred plans in Canada. This includes Registered Retirement Savings Plans (RRSPs), Deferred Profit-Sharing Plans (DPSPs), Registered Retirement Income Funds (RRIFs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), and Tax-Free Savings Accounts (TFSAs). This eligibility makes BIP an attractive option for Canadians seeking to grow their investments within tax-advantaged accounts.
Navigating Canadian Tax Forms: Form T5013 Explained
Canadian unitholders of Brookfield Infrastructure Partners will receive a specific tax form to report their income. After December 31st, which marks the end of Brookfield Infrastructure Partners’ taxation year, the partnership calculates its Canadian taxable income. This income is then allocated to all unitholders, who are responsible for reporting it on their individual Canadian tax returns. The key tax form for this reporting is Form T5013, not Form T5.
Generally, the total distributions received by a unitholder should align with the sum of the net income and expenses, along with any return of capital, as detailed on Form T5013. Minor discrepancies may occur due to fluctuations in exchange rates, particularly if distributions are received in Canadian dollars while the underlying income is in another currency.
Understanding Schedule K-1 and its Relevance for Canadians
In addition to Form T5013, Brookfield Infrastructure Partners also sends out Schedule K-1 forms to all unitholders, even those who may not strictly require it. Schedule K-1 is the U.S. equivalent of the Canadian Form T5013. It’s important to note that receiving a Schedule K-1 does not automatically trigger a U.S. tax return filing obligation for Canadian residents, nor does it necessarily indicate that filing a U.S. tax return is required. For most Canadian unitholders, especially those without other U.S. income sources, the Schedule K-1 can often be disregarded.
Receiving Your Tax Form T5013: Beneficial vs. Registered Unitholders
The process of receiving your Form T5013 depends on how you hold your Brookfield Infrastructure Partners units – whether you are a beneficial or registered unitholder.
- Beneficial Unitholders: If you hold your units in “street name” through a brokerage account, you are considered a beneficial unitholder. Beneficial Canadian unitholders should receive their T5013 form directly from their Canadian brokerage firm. If you are a beneficial holder and haven’t received your form, your first step should be to contact your brokerage firm directly.
- Registered Unitholders: If you hold your units directly registered with Brookfield Infrastructure Partners, you are a registered unitholder. Registered Canadian unitholders will receive their T5013 form directly from Brookfield Infrastructure Partners. If you are a registered holder and haven’t received your form for the previous tax year, you can contact Brookfield Infrastructure Partners’ tax support services at (866) 949-2771 or visit www.taxpackagesupport.com/brookfield.
Timelines for Receiving Form T5013 for Non-Registered Unitholders
For non-registered (beneficial) unitholders, Brookfield Infrastructure Partners provides the necessary tax information to Canadian brokers through CDS Innovations by the end of February each year. This allows brokers to prepare and distribute T5013 forms to their clients. While the legal deadline for filing and mailing Form T5013 is the end of March, brokers typically aim to distribute these forms in late March. If you have questions about your Form T5013 and you are a beneficial holder, your primary point of contact should be your brokerage firm.
Replacement T5013 Forms for Beneficial Unitholders
If you are a beneficial unitholder and have not received your T5013, it’s important to note that Brookfield Infrastructure Partners cannot directly send you a replacement form. The responsibility for preparing and distributing T5013 forms to beneficial holders lies with the brokerage firms. Brookfield Infrastructure Partners provides the required data to CDS Innovations by the end of February, and brokers then use this information to generate and distribute the forms, typically in late March, in line with the statutory requirements.
Understanding Discrepancies Between Cash Received and T5013 Amounts
Occasionally, unitholders might notice a slight difference between the Canadian dollar cash distributions they received and the amounts reported on their T5013 form. This difference is usually attributable to exchange rate fluctuations. As mentioned earlier, the distributions reported on Form T5013 should generally equal the sum of net income, expenses, and return of capital. However, if you elected to receive distributions in Canadian dollars, the exchange rate used on the record date versus the payment date can vary, leading to minor discrepancies.
Why You Might Receive a Schedule K-1: Further Clarification
As previously mentioned, receiving a Schedule K-1 does not automatically imply a U.S. tax filing obligation for Canadian residents. Brookfield Infrastructure Partners proactively sends Schedule K-1 forms to all unitholders as a matter of course. The key takeaway is that simply owning units of BIP LP generally does not create a U.S. tax filing requirement. Unless you are already obligated to file a U.S. tax return for other reasons, the Schedule K-1 received from Brookfield Infrastructure Partners can typically be discarded.
Withholding Tax on Distributions for Canadian Residents
Understanding withholding tax is crucial for Canadian residents investing in Brookfield Infrastructure Partners. Brookfield Infrastructure Partners operates as a “flow-through” entity for Canadian income tax purposes. Its income originates from holding companies located in Canada, the U.S., and Bermuda. Currently, and for the foreseeable future, this structure is expected to remain consistent.
- Payments from Canadian and Bermudian holding companies to Canadian residents are generally not subject to withholding tax.
- However, payments originating from U.S. holding companies, such as dividends, may be subject to U.S. withholding taxes.
The specific withholding tax rate can vary based on several factors, including the type of ownership account and whether unitholders have provided their broker (or Brookfield Infrastructure Partners’ transfer agent for registered holders) with the appropriate Internal Revenue Service (IRS) forms (e.g., Form W-8BEN, W-8BEN-E, W-8-ECI, W-8EXP, W-8IMY, or W-9).
Importantly, Brookfield Infrastructure Partners does not expect to generate Effectively Connected Income (ECI). This means that non-U.S. investors are generally not expected to be subject to U.S. tax withholding under IRC Sections 1446(b) and 1446(f).
For up-to-date withholding tax information on quarterly distributions, investors should consult the tax section of Brookfield Infrastructure Partners’ website, typically updated approximately two weeks before each distribution payment date.
Brookfield Infrastructure Partners’ Canadian Tax Identification
For tax reporting purposes, Brookfield Infrastructure Partners’ Canadian tax identification number (Business Number) is 83812 9450 RZ0001. This number may be required when using tax software or communicating with the Canada Revenue Agency (CRA).
Decoding Box 135 on Form T5013: Source of Foreign Income
Box 135 on the T5013 form indicates the country code for the source of foreign income.
- BMU signifies that the income originated from Bermuda.
- USA indicates that the income source is the United States.
This information helps in correctly categorizing foreign income for tax purposes.
E-filing Your Canadian Tax Return with Form T5013
Yes, you can generally e-file your Canadian personal tax return using the information provided on the T5013 form. The form should contain all legally required information for e-filing. However, individual tax situations vary, and the CRA may, in certain circumstances, require taxpayers to submit their returns in paper format. Always ensure your personal tax circumstances allow for e-filing.
NAICS Code for Tax Software: Guidance for Unitholders
Some tax software programs may prompt for a North American Industry Classification System (NAICS) code. The T5013 form does not require Brookfield Infrastructure Partners to report a NAICS code. If your tax software requests this, select the NAICS code you believe is most appropriate. This code is unlikely to impact your tax calculation.
Tax Shelter Number: Not Applicable to Brookfield Infrastructure Partners
Tax software might also ask for a six-digit Tax Shelter (TS) number. Brookfield Infrastructure Partners is not a tax shelter and, therefore, does not have a TS number. If your tax software requires this to proceed, contact the software’s customer support for assistance or to bypass this field if possible.
Specified Foreign Property: Brookfield Infrastructure Partners’ Status
For Canadian investors reporting foreign property under section 233.3 of the Canadian Income Tax Act, Brookfield Infrastructure Partners is not considered a specified foreign property. Therefore, units of Brookfield Infrastructure Partners do not need to be reported on Form T1135 Foreign Income Verification Statement.
Quebec Tax ID Number: Non-Applicable for Non-Residents
Brookfield Infrastructure Partners does not have a Quebec Tax ID number because it is considered a non-resident of Quebec. This is relevant for Quebec residents completing their provincial tax returns.
Units as Foreign Property for CRA T-1135 Form: Reiteration
To reiterate, units of Brookfield Infrastructure Partners are not considered foreign property for the purposes of the Canada Revenue Agency T-1135 Form – Foreign Income Verification Statement. This simplifies tax reporting for Canadian unitholders.
Obtaining Tax Credit for Foreign Taxes Withheld
If foreign taxes have been withheld on your distributions, Box 171 on your T5013 tax slip should indicate the amount of foreign taxes withheld. Alternatively, you can find this information on your monthly or annual broker statements. This amount can typically be claimed as a foreign tax credit on your Canadian tax return, helping to avoid double taxation.
Calculating Adjusted Cost Base (ACB) for Canadian Residents
Understanding the Adjusted Cost Base (ACB) is vital for Canadian residents when they eventually sell their Brookfield Infrastructure Partners units. Generally, for Canadian residents, the ACB of your units is calculated as:
(i) The initial amount paid to acquire the units
(ii) Plus the net of all income and expenses reported on Form T5013 over the holding period
(iii) Minus the total cash distributions received over the holding period.
All components of this calculation should be in Canadian dollars. It’s important to maintain accurate records of your transactions to correctly calculate your ACB. Brookfield Infrastructure Partners does not track the ACB for individual unitholders. Your T5013 forms will provide the necessary income and expense information over time. Unitholders are ultimately responsible for accurately calculating their ACB.
Unrelated Business Taxable Income (UBTI): Not Generated by BIP
Brookfield Infrastructure Partners is not anticipated to generate Unrelated Business Taxable Income (UBTI), and has not generated any in prior years. UBTI is typically relevant for tax-exempt investors in the U.S., and this is generally not a concern for investors in Brookfield Infrastructure Partners.
Effectively Connected Income (ECI) or Commercial Activity Income: Not Generated by BIP
Brookfield Infrastructure Partners has not generated and does not expect to generate Effectively Connected Income (ECI) or commercial activity income globally. Furthermore, BIP does not directly own assets used in a U.S. trade or business. Its U.S. operations are conducted through U.S. resident corporate subsidiaries. This clarification is important for understanding the tax implications for non-U.S. investors.
Foreign Investment Real Property Tax Act (FIRPTA): Limited Applicability
The Foreign Investment in Real Property Tax Act (FIRPTA) is a U.S. tax law. Non-U.S. investors who own 5% or less of Brookfield Infrastructure Partners’ publicly traded units generally should not be subject to FIRPTA taxation on the disposition of their units. However, investors owning more than 5% may be subject to FIRPTA taxation. This is a consideration for larger non-U.S. investors.
U.S. Tax Withholding under IRC Section 1446(f) on Disposition of Units: Generally Not Applicable
Brookfield Infrastructure Partners does not expect non-U.S. investors to be subject to U.S. tax withholding under IRC Section 1446(f) when disposing of their units. This is because BIP has not been and does not expect to be engaged in a U.S. trade or business as defined under relevant regulations. Brookfield Infrastructure Partners has issued qualified notices regarding this matter, which can be found on their investor relations website for further details and legal opinions.
Tax Implications of the 2020 Special Distribution of Brookfield Infrastructure Corporation Shares
For those who owned Brookfield Infrastructure Partners L.P. units prior to the formation of Brookfield Infrastructure Corporation and received Class A shares of the Corporation as a special distribution in 2020, it’s important to understand the tax implications. This special distribution should generally not be taxable for Canadian federal income tax purposes, provided that the ACB of your Brookfield Infrastructure Partners L.P. units remained positive after the distribution.
This distribution typically reduces the ACB of your BIP units by an amount equal to the fair market value of the Class A shares received at the time of distribution. Conversely, the fair market value of the Class A shares at the distribution time becomes your ACB for those shares. The 5-day volume-weighted average price (VWAP) ending April 6, 2020, for Brookfield Infrastructure Corporation shares on the TSX was $50.12. In June 2022, a 3-for-2 share split occurred in Brookfield Infrastructure Corporation shares. It is advisable to consult with a tax advisor for guidance on how the share split affects your ACB of Brookfield Infrastructure Corporation shares.
Disclaimer: This article provides general information for educational purposes and should not be considered tax or financial advice. Investors should consult with their own tax advisor or financial professional for advice tailored to their specific circumstances.
