The taxpayer was the limited partner of a Quebec limited partnership (“SEC”), which owned and operated multiple farms, and the president of its general partner, as well as being a minority shareholder of the shareholder of the general partner. A loss allocated to him by the SEC was denied on the basis that he was a limited partner, whose definition in s. 613.6(a) of the Taxation Act (Quebec) included (subject to inapplicable exceptions) a taxpayer at a particular time “if, at that time or within three years after that time…by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited… .”
The taxpayer submitted that he had ceased to be a limited partner by virtue of s. 2244 of the Civil Code - which provided that a limited partner “may not negotiate any business on behalf of the partnership or act as mandatary or agent for the partnership” – on the basis of his involvement in the business of SEC including negotiating with suppliers and making various purchases. In rejecting this submission, Breault JCQ stated (at paras. 85-86, TaxInterpretations translation):
...Mr. Vinet would need to present a more convincing proof to establish that the diverse acts which he presented were in reality effected, not as mandatary, agent or manager of the general partner… but rather directly for the account of the SEC or as agent or mandatary for the latter.
This conclusion cannot be derived from the evidence provided.
Breault JCQ also stated that he shared the conclusion in an article (quoted at para. 87) that:
We are in complete disagreement with the position…that the control exercised by a limited partner or limited partners over the corporate general partner suffices to engage liability of the limited partners by the combined application of articles 317 and 2244 of the C.c.Q. … [I]t is only in the common law provinces that the control of the internal management of a limited partnership gives rise to liability of the limited partners… .