2015-0610611C6 2015 CTF Q.7, Entity Classification

Principal Issues: 1) In light of the Anson UK case, has the CRA changed its position that US-LLCs are generally considered to be corporations for the purposes of the Act? 2) Can the CRA provide an update of its deliberations on the classification of Florida LLPs and LLLPs?

Position: 1) No, the Anson UK case deals with treaty interpretation issues. 2) Deliberations are still ongoing in respect of Florida LLPs and LLLPs and have been extended to Delaware LLPs and LLLPs; interested parties are invited to provide comments.

Reasons: See below.

Author: Roulier, Yannick
Section: 248(1) "corporation"

2015 CTF Annual Conference
CRA Roundtable

Question 7: Entity Classification

a) Can the CRA outline its views concerning the implications, if any, of the United Kingdom’s Anson v. HMRC case (“Anson case”; [2015] UKSC 44, United Kingdom Supreme Court) in respect of entity classification in Canada, in particular the general classification of United States Limited Liability Companies (“LLCs”) as corporations for the purposes of the Income Tax Act (“Act”)?

b) Can the CRA also provide us with an update of its deliberations on “limited liability partnerships” (“LLPs”) and “limited liability limited partnerships” (“LLLPs”)?

CRA Response

a) Although foreign countries’ court cases generally have no precedential value under Canadian law, we do consider them, especially when our laws are rooted in similar legal systems. With the Anson case, we find both the reasons in the United Kingdom Supreme Court case as well as the Court of Appeal case to be of value. However, it is our view that those cases essentially deal with treaty interpretation issues in the application of the United Kingdom – United States Tax Convention and that their overall conclusions are not relevant for entity classification in Canada. Thus, we are maintaining our position that LLCs would generally be considered to be corporations for the purposes of the Act, based on the application of our usual “two-step approach”. We say “generally” because we haven’t analyzed every state’s LLC statute and have not updated very many of our opinions for any possible changes to the statutes we have previously considered.

b) As for the status of our deliberations in respect of the classification of LLPs and LLLPs governed by the laws of the State of Florida, we have not yet concluded our analysis but we are heavily leaning towards treating them as corporations for the purposes of the Act. We have received one very good submission thus far, but would like to hear from others as well. Thus, we will hold off concluding for a few more weeks in the hopes of receiving additional submissions.

We have more recently been asked to consider the treatment of similar entities governed by Delaware law. Our preliminary views in this regard are that they are virtually identical to their Florida counterparts. We will similarly hold off concluding on these Delaware entities in the hopes of receiving submissions on them.

Yannick Roulier
2015-061061
November 24, 2015

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