Brookfield Infrastructure Partners: BIP.UN vs BIPC

Brookfield Infrastructure Partners

In September 2019, Brookfield Infrastructure Partners LP, or BIP.UN announced a stock split creating Brookfield Infrastructure Corporation or BIPC. Like BIP.UN, BIPC allows access to the same underlying global portfolio of infrastructure assets including railways, ports, pipelines, utilities, toll roads, and telecom towers.

Unit Split

Under the split, which was completed end of March 2020, BIP.UN unitholders received one share of BIPC for every nine BIP.UN units held. For example, if someone held 100 units of BIP.UN before the split, they would have 100 units of BIP.UN plus 11 (100 divided by 9) shares of BIPC, and a small amount of cash for the remaining fractional shares.

Why the split

Just as for Brookfield Renewable Partners or BEP.UN’s split into BEP.UN and BEPC, BIPC is aimed at certain institutions and select retail investors that are unable to hold the existing Bermuda-based limited partnership units. Brookfield has previously cited three reasons for such splits: 1) potential increased demand from US retail investors due to more favorable and simpler tax treatment, 2) increased demand from institutions who are unable to hold partnership units, and 3) eligibility for inclusion in certain indices, such as those offered by MSCI.

Distribution

BIP.UN and BIPC will pay the same US dollar distribution paid quarterly. As such the stock prices will also trade closely within a range. The only difference between the two comes down to taxation. Given that BIP.UN is a Bermuda-based limited partnership, distributions historically included foreign dividend and interest income, Canadian source interest, other investment income and capital gains, as well as return of capital. Return of capital is not immediately taxable but is effectively a capital gains tax when the units are sold. The BIPC dividend would be a regular dividend.

Registered vs Non-Registered Accounts

BIPC’s dividend is fully eligible for the dividend tax credit, whereas BIP.UN’s distribution composition may vary on tax consequences each year, depending on the proportion of the various sources of income that year. Given the difference between BIPC’s dividend and BIP.UN’s distribution, the BIP.UN’s units will be more efficient in registered accounts rather than non-registered ones. If both BIP.UN and BIPC are held in a registered account, the tax treatment does not matter and there is no advantage to owning one over the other. In a non-registered account, however, it depends on your circumstances—the tax-deferral benefits of holding BIP.UN might outweigh the benefit from the dividend tax credit for BIPC. However, BIP.UN’s tax report will likely be more complicated than that for BIPC given the need to track your adjusted cost base (return of capital reduces adjusted cost base).

Bottom Line

There is an “economic equivalence” between dividends from BIPC and distributions of BIP.UN. The split was to generate higher retail and institutional interest and having both options allow different benefits to groups of investors. We hope this primer offers a good base on the difference and similarities between the two tickers.