2016-0669751C6 2016 CTF – Q10 – U.S. LLPs and LLLPs

Principal Issues: Whether the CRA would accept filing as a corporation only on a go-forward basis.

Position: The CRA is open to a prospective approach and invites submissions in this regard.

Reasons: A working group has been set up to study compliance issues relating to U.S. LLPs and LLLPs.

Author: Roulier, Yannick
Section: 150

2016 Canadian Tax Foundation Annual Conference

CRA Roundtable

Question 10: U.S. LLPs & LLLPs

At the 2016 Society of Trust and Estate Practitioners (“STEP”) and the International Fiscal Association (“IFA”) CRA Roundtable, the CRA announced that it considers Florida and Delaware limited liability partnerships (“LLPs”) and limited liability limited partnerships (“LLLPs”) to generally be corporations for the purposes of Canadian income tax law. As part of this announcement, the CRA offered administrative relief to existing LLPs and LLLPs that meet certain criteria such that the CRA would accept their treatment as partnerships for the purposes of the Act. 

The position will affect certain U.S.-based LLPs and LLLPs, with many partners, which carry on business in Canada. They are unable to qualify for the administrative relief provided because, for business reasons, they cannot convert to LPs. They are generally prepared to begin filing as corporations in future years, however, amending all previous years’ returns for all individual partners would be impractical if not impossible.  

Would the CRA consider allowing these entities to file as a corporation on a go-forward basis while leaving its previous years’ partnership/partner filings unchanged?

CRA Response

The CRA has established an internal working group to study compliance issues related to LLPs and LLLPs. It is being led by members of the audit branch, specifically the International Tax Division (“ITD”) of the International and Large Business Directorate of the International, Large Business and Investigations Branch. Some questions and submissions have already been received by officials of the CRA and have been brought to the attention of members of the working group. The ITD is open to a prospective approach whereby prior filings would, in certain circumstances, be allowed to stand, and welcomes submissions from taxpayers and their representatives in this regard. Submissions should be sent by February 28, 2017 to the following mailbox: DELAWAREFLG@cra-arc.gc.ca.

One must keep in mind that Canada’s tax system is one of self-assessment and taxpayers are expected to know the law and properly comply with it. CRA resources are available to taxpayers when they have doubts as to their filing positions, but the CRA can’t be considered to have assented to taxpayer filing positions indirectly through so-called “negative assurance”. In other words, a taxpayer that files incorrectly cannot assume that the return will not be reassessed if the CRA later discovers the error, even if the return was originally assessed as filed, or a prior return containing the same error is statute-barred.

Yannick Roulier
Dave Beaulne
2016-066975
November 29, 2016

Response prepared in collaboration with:
Mark Turnbull and Alexandra MacLean
International Tax Division
International, Large Business and Investigations Branch

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