GENERAL TAX INFORMATION
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 unitholder of American Hotel Income Properties REIT LP, and no representation with respect to the Canadian or U.S. income tax consequences to any particular unitholder is made. Therefore, unitholders of American Hotel Income Properties REIT LP units are encouraged to consult their own tax advisors for advice with respect to their particular circumstances.
Unitholders should also review American Hotel Income Properties REIT LP’s public disclosures in their entirety as published on the SEDAR website at sedar.com
As required under relevant tax rules, U.S. withholding tax was remitted for taxable unitholders to the Internal Revenue Service in the United States based on management’s estimates. The actual breakdown between return of capital and dividend income for U.S. and Canadian tax purposes for 2016 is:
|Year||Return of capital||Taxable||Total|
|2016 – %||37.97%||62.03%||100.00%|
|2016 – $||0.328||0.535||0.863|
American Hotel Income Properties REIT (“AHIP”) LP is a Canadian-based limited partnership that is publicly traded and is treated as a partnership for Canadian and U.S. tax purposes. As such, AHIP is a “flow through” entity for Canadian and U.S. tax purposes and is not subject to tax. Income of AHIP is allocated to and is subject to tax in the hand of its unitholders.
AHIP does not earn active business income. Instead, AHIP receives investment income, such as dividends, and return of capital from subsidiary corporations that carry on business in the United States. Income for Canadian and U.S. tax purposes is likely to be different due to the difference in currencies used to compute income and tax legislation of the two countries. Taxable income may be less than the distribution for a particular period due to returns of capital paid by AHIP in that period. The computation of AHIP’s Canadian and U.S. income for tax purposes allocated to the unitholders for a particular taxation year is independent of (i) the annual accounting net income of AHIP; (ii) the annual cash flow generated by AHIP and (iii) the annual distributions.
An AHIP unit is a qualified investment for RRSPs, deferred profit sharing plans, RRIFs, registered education savings plans, registered disability savings plans and TFSAs.
The income AHIP earns from its underlying subsidiary is US-source dividends paid by such subsidiary. Such dividends are subject to U.S. withholding tax. As AHIP is a “flow-through” entity for Canadian and U.S. income tax purposes, a portion of the income may be subject to U.S. withholding taxes (including back-up withholding tax). The rate of withholding varies depending on, amongst other factors, a unitholder’s country of tax residence, type of ownership account, and whether a unitholder provided his/her broker with the appropriate Internal Revenue Service (“IRS”) Form (for example, Form W-8BEN, W-ECI, W-8EXP, W-8IMY or W-9). The type of documentation for U.S. withholding tax purposes will differ depending on a unitholder’s tax profile for U.S. tax purposes. We encourage unitholders to submit the appropriate IRS Form to their broker so their account can be (and will continue to be) certified and the most appropriate rates of withholding can be applied to distributions.
As required under relevant tax rules, U.S. withholding tax was remitted for taxable unitholders to the Internal Revenue Service in the United States based on management’s estimates. The actual breakdown between return of capital and dividend income for U.S. and Canadian tax purposes will be determined and posted once year-end tax information becomes available.
For Canadian and U.S. resident unitholders, in general, a unitholder’s tax cost of his/her AHIP units should equal the sum of (i) the amount paid to acquire the units and (ii) the net income for tax purposes allocated to the unitholder, less the cash distributions received.
The schedules distributed with 2016 Schedule K1 (Form 1065) compute the tax cost of AHIP units for U.S. resident unitholders.
After the end of AHIP’s taxation year (December 31), the Canadian and U.S. taxable income of AHIP is determined and allocated to all unitholders, who in turn are required to report such income on 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).