CRA publishes detailed views as to when a partnership will be recognized

CRA has published a GST/HST Memorandum on what constitutes a partnership which is more detailed than the Income Tax Folio on this subject. Points of interest include:

• A partnership cannot come into existence prior to the time that its partners commence to carry on business in common with a view to sharing profits of the business, so that, for example, a limited partnership which has been registered as such is not a partnership if it has not commenced to carry on business [accord D Marks cf. Bank of Beirut SAL v Prince Adel El-Hashemite].
• Consistent with Backman, a business must actually be carried on for more than a brief moment in time before being disposed of in order for an alleged partnership to in fact be formed.
• For purposes of the requirement that there be a sharing of profits, the ordinary commercial meaning of profit can include an increase in the value of assets (which suggests that profits for this purpose can include mark-to-market profits, such as under a carry).
• Where a person receives a salary or other remuneration that is not based on its interest in the partnership, then that person is not considered to be acting in partnership with the other parties engaged in the subject activity [per contra, Zahid Solicitors].
• Events that may result in a partnership ceasing to exist include:
  • the conversion of a general partnership to a limited partnership such that the general partnership ceases to exist [cf. 2016-0660321R3 and 1992 Corporate Management Tax Conference Report (CTF), Q.11]
  • a change in the members of a partnership, such as when a person ceases to be a member or a new person is admitted as a member [even though most partnership agreements expressly provide the opposite?]
  • an event occurs that makes the partnership business illegal [cf. Continental Bank]
• Somewhat contrary to the above position, that reference should be made to whether a business in fact is carried on, it is stated that until dissolution of a partnership is evidenced by duly-filed declaration, the dissolution is not effective with respect to third parties (presumably including CRA).
• Where a foreign jurisdiction permits a person to be admitted to a limited partnership as a general partner or as a limited partner without obligation to make a contribution, this is inconsistent with provincial partnership law, so that in such circumstances a determination must be made, under the two-step approach to entity classification, as to whether the entity is closer to a partnership than other some other form of organization recognized under Canadian law.
• There is a detailed description of the differences between a co-ownership arrangement and a partnership

Neal Armstrong. Summary of GST/HST Memorandum 14-9-1 “Partnerships - Determining the Existence of a Partnership” March 2025 under s. 96.