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 Renewable Energy Partners shares.
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 Renewable Energy Partners shares, and no representation with respect to the U.S., Canadian and Australian income tax consequences to any particular holder is made. Consequently, holders of Brookfield Renewable Energy Partners shares are advised to consult their own tax advisors with respect to their particular circumstances.
Characterization of Brookfield Renewable Energy Partners for Tax Purposes
Brookfield Renewable Energy Partners L.P. is a Bermuda based limited partnership that is treated as a partnership for U.S. and Canadian tax purposes. Brookfield Renewable Energy Partners is not a corporation or a trust. Brookfield Renewable Energy Partners is a publicly traded partnership that does not earn active business income. Instead, Brookfield Renewable Energy Partners earns interest and dividends from subsidiary corporations in various jurisdictions that carry on power generation businesses.
Brookfield Renewable Energy Partners shares qualify for IRA accounts. Brookfield Renewable Energy Partners is a qualified investment for RRSPs, deferred profit sharing plans, RRIFs, registered education savings plans, registered disability savings plans and TFSAs.
Flow-Through Nature of Brookfield Renewable Energy Partners
As a partnership, Brookfield Renewable Energy Partners is a so-called "flow through" for U.S. and Canadian tax purposes. That is, Brookfield Renewable Energy Partners is not subject to tax, instead its 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 shareholders.
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 Renewable Energy Partners and its subsidiaries for a particular taxation year. Brookfield Renewable Energy Partner's taxable income will 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.
Communication of Tax Information
After the end of Brookfield Renewable Energy Partner's taxation year (December 31), the U.S. and Canadian taxable income of Brookfield Renewable Energy Partners is determined and allocated to all shareholders 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 shareholders should receive a Schedule K-1 from Brookfield Renewable Energy Partners. We are required to use reasonable efforts to send a Schedule K-1 to all shareholders (not just U.S. residents). Consequently, Canadian shareholders may receive a Schedule K-1 in addition to Form T5013. In general, Canadian resident shareholders may disregard the Schedule K-1 (unless for example, they are a U.S. citizen).
Canadian registered holders of Brookfield Renewable Energy Partners shares will receive a T5013 directly from Brookfield Renewable Energy Partners. All other Canadian shareholders should receive a T5013 from their Canadian broker. Brookfield Renewable Energy Partners voluntarily provides Forms T5013 to assist Canadian shareholders with the accurate reporting of taxable income associated with the ownership of Brookfield Renewable Energy Partners shares.
Relationship of Taxable Income to Distributions
The computation of Brookfield Renewable Energy Partners' annual U.S. and Canadian taxable income for a particular taxation year is independent of (i) the annual accounting income of Brookfield Renewable Energy Partners; (ii) the annual cash generated by Brookfield Renewable Energy Partners and (iii) the annual distributions. As an investor in Brookfield Renewable Energy Partners, holders are required to pay tax on their proportionate share of Brookfield Renewable Energy Partners' taxable income. The U.S. and Canadian taxable income of Brookfield Renewable Energy 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 Renewable Energy Partners and its subsidiaries for the particular taxation year.
Withholding Tax Treatment of Distribution
The income Brookfield Renewable Energy Partners earns from underlying subsidiaries will include dividends and interest paid by subsidiaries in jurisdictions that levy withholding tax. Since Brookfield Renewable Energy 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 United States. To reduce the incidence of withholding tax, all non-U.S. shareholders should provide a U.S. W8BEN withholding tax form to their broker. The collection of withholding taxes and U.S. W8BEN withholding tax forms is performed by brokers rather than Brookfield Renewable Energy Partners by itself.
Computation of Tax Cost
For U.S. and Canadian residents, in general, a shareholder's tax cost of his/her Brookfield Renewable Energy Partners shares should equal the sum of (i) the amount paid to acquire the shares and (ii) the net taxable income allocated to the shareholder, minus the cash distributions received.1
The schedules distributed with Schedule K-1 compute the tax cost of Brookfield Renewable Energy Partners shares for U.S. residents.
For Canadian residents, the tax cost of shares is determined in Canadian dollars so all three components should be determined in Canadian dollars. Brookfield Renewable Energy Partners does not have sufficient information to track the tax cost of shares 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. Shareholders are obligated to accurately compute the tax cost of their Brookfield Renewable Energy Partners shares.
Other Tax Matters
Effectively Connected Income (ECI) Brookfield Renewable Energy Partners has not and is not expected to generate effectively connected income (ECI). Brookfield Renewable Energy Partners' U.S. operations are carried out through its wholly owned U.S. resident subsidiary, Brookfield Power US Holding America Co and its subsidiaries.
Foreign Investment Real Property Tax Act (FIRPTA)
Non-U.S investors that own 5% or less of Brookfield Renewable Energy Partners publicly traded shares should not be subject to FIRPTA taxation on a disposition of their shares. Investors that own more than 5% of Brookfield Renewable Energy Partners publicly traded shares may be subject to FIRPTA taxation on a disposition of their shares.
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 Renewable Energy Partners is a specified foreign property.
1The U.S. dollar distributions must be converted to Canadian dollars before reducing the tax cost of Brookfield Renewable Energy Partners shares for Canadian tax purposes. Brookfield Renewable Energy Partners does not prescribe a particular foreign exchange rate that shareholders should use to make such conversions. Shareholders and/or their brokers would generally be expected to use the conversion rate on the date of receipt of the distribution.
Note: The information provided on this website does not constitute tax advice and is not intended to be a substitute for tax planning. Investors are encouraged to consult their tax advisors concerning the income tax consequences particular to their receipt, ownership and disposition of shares, as well as any consequences under the laws of any other taxing jurisdiction.