Under Canadian principles, a partnership is a relation that subsists between persons carrying on a business in common with a view to profit. As discussed below, the requirements for a business which is carried on in common with a view to profit are considered the three key requirements for a partnership to exist under Canadian law.
A partnership is generally treated as a conduit or flowthrough vehicle for Canadian income tax purposes. Its income or losses are allocated to its members and, subject to limited exceptions, the Income Tax Act of Canada1 (“the Act”) does not subject the partnership to an entity-level tax.
The flow-through nature of a partnership historically made partnerships a popular vehicle for tax-motivated investments that relied on the allocation of losses to investors to generate a favorable investment return. The “at-risk” rules and the“tax shelter” investment rules were introduced in the mid-1980s to curtail this use of partnerships.
More recently, it had been advantageous to use partnerships in publicly-traded investment structures expected to generate income rather than losses. 2 Such structuring avoids the entity-level tax that applies to profits of corporations. Measures known as the “SIFT” rules (see 6.) were recently adopted to reduce the tax benefits of these structures.
Partnerships are often used in cross-border structures, where the beneficial tax results flow from“hybrid” classification; that is, the partnership is treated as a flow-through vehicle for purposes of the tax rules in one jurisdiction and as an entity that is taxed separately from its members in another jurisdiction. Recent amendments to Canada–United States tax treaty3 deny the treaty rate of withholding tax in certain Canada–US hybrid entity structures. Considerable scope remains to use partnerships in tax structuring, but the recently implemented changes and various anti-avoidance rules must be considered.
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Name Search confirming the uniqueness of the name
Government registration fee
Registered office address for one year
Declaration Form 3 confirming registration of the Limited Partnership
Organizational Resolutions of the General Partners
Resolution Admitting of Limited Partner
Register of General Partners
Register of Limited Partners
Shared from: Bulletin for International Taxation