Vinet v. Sous-ministre du Revenu du Québec, 2017 QCCQ 3957, aff'd 2019 QCCQ 574

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… .

An individual, who was the sole limited partner of a Quebec limited partnership (“SEC”) that owned and operated multiple farms, and the president of its general partner, argued that he was not a limited partner under the Quebec equivalent of ITA s. 96(2.4)(a), so that he could deduct his share of a substantial loss of the LP. He relied in this regard on 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,” and pointed to his involvement in the business of the LP including negotiating with suppliers and making various purchases.

Breault JCQ found that the individual had failed to establish that such activities were not effected as agent or manager for the general partner. He also quoted with approval an author who opined that “it 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.”