CRA indicates that a grandfathered LLLP cannot treat itself prospectively as a corporation without losing grandfathering

2017-0691131C6 stated that one of the conditions for allowing Delaware or Florida LLLPs formed before April 26, 2017 to file as a partnership was that “no member of the entity and/or the entity itself takes inconsistent positions from one taxation year to another … between partnership and corporate treatment.” Two LLLPs (held by Canadian resident corporations) that had filed as partnerships for Canadian tax purposes since the time of their formation proposed to now treat themselves as corporations on a prospective basis. CRA found that this would violate such condition (“the change by the LLLPs from partnership to corporate treatment constitutes taking an inconsistent position from one taxation year to the next”) and added:

As stated at IFA 2017, where any of these conditions is not met in respect of any such entities formed before April 26, 2017, the CRA may issue assessments or reassessments to the members and/or the entity, for one or more taxation years, on the basis that the entity was always a corporation.

The LLLPs will not be viewed as corporations for Canadian tax purposes on a solely prospective basis.

Neal Armstrong. Summary of 1 August 2019 External T.I. 2018-0768561E5 under s. 96.