Multi-year management fee reassessment in founder-led real estate platform

Platform Structure

A founder-led real estate investment platform operated through a centralized management entity.

That entity directed:

• Capital allocation across assets
• Portfolio-level financing and refinancing
• Lender negotiations and covenant management
• Disposition timing and hold strategy
• Sponsor guarantees

Individual properties were owned in separate legal entities. Strategic decisions were made at the centre.

As the portfolio expanded and financing structures became more complex, management fees increased in absolute terms.

Reassessment

The Canada Revenue Agency reassessed multiple taxation years concurrently and challenged the deductibility of management fees.

The Agency did not deny that services were performed. It asserted that certain functions duplicated asset-level activity, that fee levels exceeded arm’s-length benchmarks, and that a portion of the fees reflected profit extraction rather than compensation.

The reasons for reassessment adopted a defined view of how the platform operated.

Dispute

The dispute did not turn on documentation or contractual form.

It turned on where material strategic decisions were made, which entity bore financing exposure and sponsor risk, and whether centralized oversight replaced or duplicated asset-level activity.

The reassessment treated scale as evidence of excess. The platform treated scale as evidence of necessity.

Exposure

• Multi-year denial of management fee deductions
• Income reallocation within the group
• Potential penalties
• Broader scrutiny of the platform’s operating model

The reassessment became the formal statement of the Agency’s theory.

Resolution

Before filing the notice of objection, the dispute was reframed around centralized decision-making authority and financing exposure rather than benchmark comparisons.

The reassessment was reduced. The Agency’s broader characterization of the platform’s structure did not carry forward.

Throughout the dispute, reporting to the board and institutional capital partners remained aligned with that reframed theory. The dispute remained confined to the management fee issue.