July 14, 2017

Canada Revenue Agency Announces Transitional Relief for Certain US LLPs and LLLPs

Our July 1, 2016, International Tax Alert “Canada Revenue Agency Announces US LLPs and LLLPs to be Taxed as Corporations for Canadian Purposes” discussed Canada’s decision to treat Delaware and Florida Limited Liability Partnerships (LLPs) and Limited Liability Limited Partnerships (LLLPs) as corporations, and the transitional retroactive relief available to residents of Canada by converting the entity into either a General Partnership (GP) or Limited Partnership (LP).

Updated Transitional Relief

On April 26, 2017, Canada Revenue Agency (CRA) announced the following change to the transitional relief for Florida and Delaware LLPs and LLLPs formed before April 26, 2017:

“After an analysis of the complexities for taxpayers and the tax administration of transition from partnership filings to corporate filings, the CRA has decided to build on the prospective approach referred to in the November 2016 CTF announcement by offering administrative grandfathering. In particular, the CRA will be adopting the administrative practice of allowing any such entity formed before April 26, 2017 to file as a partnership for all prior and future tax years, provided none of the following conditions applies:

• One or more members of the entity/and or the entity itself take inconsistent positions from one taxation year to another, or for the same taxation year, between partnership and corporate treatment;
• There is a significant change in the membership and/or the activities of the entity; or
• The entity is being used to facilitate abusive tax avoidance.”

What does this mean for you, if you are a resident of Canada with a US LLP and/or LLLP interest?

Provided none of the above conditions apply, and your US LLP and/or LLLP is formed before April 26, 2017, CRA will allow all prior and future Canadian tax returns to be filed on the basis the entity is a partnership.

The announcement further states “to the extent LLPs or LLLPs of other jurisdictions of the U.S. have similar attributes to those of Florida and Delaware and the CRA views them as corporations for the purposes of Canadian income tax law, the CRA’s administrative policy outlined above will be applied to them as well.”

CRA also confirmed in its announcement that US LLPs and LLLPs formed after April 25, 2017, will be treated as corporations for Canadian tax purposes.

Please consult your cross-border tax adviser to determine how the foregoing affects your entity.

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