Canada: CRA to treat certain U.S. LLPs as corporations | KPMG | GLOBAL

Canada: CRA to treat certain U.S. LLPs as corporations

Canada: CRA to treat certain U.S. LLPs as corporations

Officials from the Canada Revenue Agency (CRA)—speaking at an annual conference of the Canadian branch of the International Fiscal Association (IFA) in late May 2016—commented on the proper classification of limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) governed by the laws of Florida and Delaware and said that these entities are to be treated as corporations for Canadian tax purposes.


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The CRA has indicated that written responses to the questions posed at the conference would be available soon.


At last year’s conference, the CRA confirmed that it still follows a “two-step approach” to entity classification, and reported it was in the process of considering the proper classification of limited liability partnerships (LLPs) and limited liability limited partnerships (LLLPs) governed by the laws of Florida, but that it had not yet concluded its analysis. At a November 2015 conference of the Canadian Tax Foundation, the CRA said that it had still not concluded its analysis in this regard, but that it was leaning toward treating them as corporations. It also stated that its analysis had been broadened to include LLPs and LLLPs governed by the laws of Delaware.

Florida, Delaware entities

Speaking at the May 2016 conference, the CRA officials said that only three submissions had been received on this topic, a low level of response to the request for input. The two main factors that the CRA looked at—in arriving at the position on the classification of these entities under both Delaware and Florida partnership law—were the entities’ legal personality and the fact that the entities provide limited liability protection to members, much like corporations. Accordingly, as the CRA officials stated, LLPs and LLLPs formed under Delaware and Florida partnership law are to be treated as corporations for Canadian tax purposes. The CRA essentially equates these entities to LLCs.

However, the CRA officials acknowledged that this treatment could create problems for groups that include these entities, and agreed to provide some administrative concessions. If the following conditions are met, absent any tax avoidance, these entities could be converted into some other form of partnership without triggering any adverse Canadian tax implications:

  • The entity must have been formed, and must carry on business, prior to July 2016.
  • The members must have formed the entity in order to carry on business in common, with a view to profit (the statutory definition of a partnership).
  • The members must have intended the entity to be treated as a partnership, from the time of its formation, for Canadian tax purposes.
  • Neither the entity nor any of its members have taken the position that the entity is not a partnership.
  • The entity must be converted into some other form of partnership recognized by the CRA as a partnership prior to 2018. 


The CRA officials also stated that this relief would not apply to an LLC or a U.S. C corporation that is converted to an LLP or an LLLP prior to July 2016. In this situation, there would not be a significant change to the treatment of the entity from a Canadian perspective (it would go from being treated as a corporation to being treated as a corporation); and therefore, no relief would be granted.


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