Alan Kenigsberg, "Changes to Tax Treatment of ILPs under the ETA", Sales Tax, Customs & Trade, Volume XV, No 2, Federated Press, 2018, p.9

Purpose of ILP rules (p. 9)

We understand that the new measures were aimed at preventing certain investment funds from structuring their affairs as a limited partnership that pays the manager of the fund (acting as the general partner of the limited partnership) an exempt partnership distribution rather than a taxable payment for management and administrative services. However, in practice, the Proposed Legislation has created significant uncertainty as to exactly what it is intended to apply to, and how it is intended to apply….

Difficulties as to time frame in which to apply ILP definition (p. 11)

In a submission dated November 8, 2017, the Canadian Bar Association provided the following example to the Department of Finance to highlight some of the conceptual difficulties raised by the proposed definition of ILPs:

1) Partnership ABC is established on January 1, 2018 with the purpose of investing directly or indirectly in commercial real estate;

2) Partnership ABC's first investment, made on February 1, 2018, is the payment of $1,000,000 to acquire a 99.9% interest in another partnership whose sole asset is a commercial building which the second tier partnership rents to tenants (and charges the applicable GST/HST);

3) On August 1, 2018, Partnership ABC makes a second investment of $2,000,000 directly in commercial real estate;

4) On December 31, 2018, the direct investment in real property had decreased in value to $500,000, while the value of the initial indirect investment in real property (i.e. the partnership interest) remained the same.

This situation shows that depending on the standard used and the timing of the determination, there may be multiple different ways to interpret the primary purpose of an ILP.

Aborted proposal to extend qualifying taxpayer rules to non-resident LPs (p. 12)

When the Department of Finance first announced that it was looking into drafting new rules for ILPs and requested comments, it suggested that the self-assessing rules may be extended to limited partnerships where the value of the assets of the partnership in which one or more persons resident in Canada have a beneficial interest, is equal to or exceeds $10 million and is equal to or exceeds 10% of the total value of the assets of the partnership. Thankfully, the Department of Finance appears to have dropped this proposal (presumably, at least in part, as it would likely result in some non-resident funds forbidding Canadian investors from investing so they would not be caught by the rules) and the Proposed Legislation does not contain any rules extending the self-assessment requirements in subsection 217.1(1) of the Excise Tax Act to non-resident ILPs (even those with Canadian residents holding significant beneficial interests).

Self-assessment within a FMV range (p. 14)

[I]f the transfer pricing model … were adopted, a transfer pricing-like study would often generate a range of acceptable arm’s length prices for particular management and administrative services. Would the general partner then be entitled to self-assess any amount of tax within the appropriate range?