Issue 448, December 2018

At the October 5, 2018 APFF Round Table, CRA commented on the ability to assign business limit in a fairly complex business structure. CRA’s preliminary response included the diagram below.


The question indicated that each of A, B, C and D act at arm’s length to each other and to ABCD LLP and Serviceco.

CRA first noted that, as Serviceco provides services exclusively to ABCD LLP, and one of its shareholders is a partner, Serviceco is a deemed member of the partnership and will not be eligible to claim the small business deduction in the absence of an assignment of Specified Partnership Business Limit (SPBL) from a partner. See VTN 417(7) for details of the SPI provisions.

this potential down side of acting at arm’s length

CRA discussed the ability of each partner to assign SPBL to Serviceco (Subsection 125(8)). CRA confirmed that only a partner in ABCD LLP who is also a shareholder of Serviceco can make an assignment, as all partners act at arm’s length with Serviceco. Reviewing each principal’s structure, CRA indicated the following:

a careful review of the SPI rules in complex ownership structures

  1. As Holdco A and Holdco C were not shareholders of Serviceco, they could not assign any of their SPBL to Serviceco;
  2. As B was both a shareholder of Serviceco and a partner of ABCD LLP, B could assign all or any part of its SPBL to Serviceco; and
  3. As D was not a shareholder of Serviceco, he could not assign any of his SPBL to Serviceco.

Like this article? Click here to become a Monthly Tax Update Newsletter subscriber.