CRA confirms that the GST/HST test of an investment limited partnership is not a day-by-day numerical test

The ETA definition of an “investment limited partnership” (ILP) includes a test as to whether the “primary purpose” of the limited partnership was to “invest funds in property consisting primarily of financial instruments.” CRA confirmed its position in Notice 308 that this encompassed situations where the purpose of the LP was to invest in real estate through subsidiary LPs. CRA indicated that this was a primary purpose test which “would generally reflect its main or fundamental purpose at the time it was established – and may be reassessed later on.” Thus, the application of this test would not be affected solely by short-term changes in the value of investments due to market shifts.

Respecting this scenario:

On day one, LP uses 40% of the capital raised to acquire interests in other limited partnerships which invest in commercial and residential real property; and on day two, it uses the remaining 60% to invest directly in real property. On day 180, due to market shifts, the interests LP owns in the limited partnerships are now worth $1,200,000, while the direct investments in real property (acquired with 60% of the original capital) are now worth $800,000.

CRA stated that “we would likely conclude that the LP is not an ILP and further information would be required to determine if the LP … is considered an ILP at a later time."

Neal Armstrong. Summary of 28 February 2019 CBA Roundtable, Q.25 under ETA s. 123(1) - investment limited partnership.