CRA states that a badly-drafted HST Reg. that could deem all ILPs to be SLFIs should be broadly interpreted
Under s. 9(a) of the SLFI Regulations, an investment limited partnership ("ILP") whose partners are all resident in a single HST province, such as Ontario, will also be a selected listed financial institution (“SLFI”) if it has a permanent establishment in a non-HST province. As per s. 3(e)(i) of the SLFI Regulations, it will be deemed to have a PE in such a province where it “is qualified, under the laws of Canada or a province, to sell or distribute units of the [ILP] in the particular province.”
If the quoted phrase were interpreted broadly, then all ILPs would be regarded as being permitted under the securities laws of each provinces to distribute their securities on a private-placement basis - so that all ILPs would be regarded as qualified to distribute securities in each province. However, such an interpretation would render s. 3(e)(i) redundant, i.e., all ILPs would be SLFIs. What likely would come within s. 3(e)(i) is something like a conventional mutual fund which has already gone through the hoops so as to be qualified to be in continuous distribution – as contrasted, at the other extreme, to a conventional ILP which if it, for example, has no intention of preparing a current offering memorandum, is not yet qualified to distribute securities, even on a private placement basis.
When asked about s. 3(e)(i), CRA gave the following opaque answer:
It is CRA’s understanding that the policy intent is that the words of subparagraph 3(e)(i) of the SLFI Regulations are intended to be broadly interpreted. Similar to other distributed investment plans, the ILP would be required to determine if it is qualified under the laws of Canada or a province, to sell or distribute its units in a particular province in order to determine whether the ILP is deemed to have a permanent establishment in a particular province.