Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
This technical interpretation was obtained directly from the correspondent and has not been vetted by the Rulings Directorate for any revisions to be made by it or to prepare a summary thereof.
From: "Delaware Florida / Delaware Florida (CRA/ARC)" (DELAWAREFLG@cra-arc.gc.ca)
Date: July 21, 2017 at 2:23:32 PM GMT-4
To: "Michael Kandev" (firstname.lastname@example.org)
Cc: "Delaware Florida / Delaware Florida (CRA/ARC)" (DELAWAREFLG@cra-arc.gc.ca)
This correspondence is further to your submission of April 27, 2017 regarding compliance issues related to Delaware & Florida limited liability partnerships (“Delaware & Florida LLPs”) and Delaware & Florida limited liability limited partnerships (“Delaware & Florida LLLPs”).
Based on the information provided in your submission, we believe the following information addresses the issues that you raised. Clarifications are also included on other questions raised on the subject matter.
The Canada Revenue Agency (“CRA”) position expressed at the CRA Roundtable of the 2016 annual meeting of the International Fiscal Association - Canadian chapter (“IFA”) held on May 26, 2016 (see document 2016-0642051C6 attached; the “IFA 2016 Pronouncement”) regarding the treatment of Delaware & Florida LLPs and Delaware & Florida LLLPs was that these types of entities should generally be treated as corporations for the purposes of Canadian income tax law.
At the 2016 Canadian Tax Foundation annual conference, the CRA announced that it had established an internal working group (the “CRA Delaware/Florida Working Group”) to study transitional and compliance issues related to Delaware & Florida LLPs and Delaware & Florida LLLPs arising from its prior announcement that it would generally consider such entities to be corporations for Canadian tax purposes.
As a result of the CRA Delaware/Florida Working Group’s review, the CRA announced at the IFA Conference CRA Roundtable on April 26, 2017 (see document 2017-0691131C6 attached; the “IFA 2017 Pronouncement”) that it would offer administrative grandfathering. The CRA’s administrative practice will allow any Delaware & Florida LLPs and any Delaware & Florida LLLPs formed before April 26, 2017 to file as a partnership for all prior and future taxation years, provided none of the following conditions applies:
1) One or more members of the entity and/or the entity itself take inconsistent positions from one taxation year to another, or for the same taxation year, between partnership and corporate treatment;
2) There is a significant change in the membership and/or the activities of the entity; or
3) The entity is being used to facilitate abusive tax avoidance.
Where any of these conditions is met in respect of any such entities formed before April 26, 2017, the CRA may issue assessments to the members and/or the entity, for one or more taxation years, on the basis that the entity is a corporation.
Frequently asked questions
1) Regarding the first condition of the administrative practice mentioned above, the following examples will generally not, in and by themselves, be considered by the CRA as “inconsistent positions”:
a. The “protective filing” of T1134s and / or T106s, in respect of Delaware & Florida LLPs or Delaware & Florida LLLPs, based on the IFA 2016 Pronouncement;
b. Delaware & Florida LLPs and Delaware & Florida LLLPs that have been assigned a Business Number by the CRA, further to a request made based on the IFA 2016 Pronouncement;
c. Filing a T2 corporate tax return in respect of a Delaware & Florida LLP or a Delaware & Florida LLLP based on the IFA 2016 Pronouncement.
2) Regarding the second condition of the administrative practice mentioned above, a non-arm’s length (NAL) change (e.g. a transfer of membership between NAL parties or the issuance of additional memberships to NAL parties) will not be considered a “significant change”.
3) Where any of the conditions in respect of the administrative practice are first met in a given year that ends after the IFA 2017 Pronouncement, the CRA may issue assessments or reassessments to any member and /or the entity in respect of that taxation year and the following taxation years, on the basis that the entity is a corporation, but not for the prior taxation years.
4) The fact that a particular entity has been initially set up as a limited liability company (“LLC”) and subsequently converted before April 26, 2017 to a Delaware & Florida LLP or a Delaware & Florida LLLP would not, in and by itself, prevent such entity from taking advantage of the administrative practice allowing the grandfathering of the partnership status of the entity.
5) In accordance with the IFA 2017 Pronouncement, to the extent LLPs or LLLPs of other jurisdictions of the U.S. have similar attributes to those of Florida and Delaware and the CRA views them as corporations for the purposes of Canadian income tax law, the CRA’s administrative policy outlined above will be applied to them as well, provided the entities are set up before April 26, 2017.
We thank you for your submission.
CRA Delaware/Florida Working Group
International Tax Division
International and Large Business Directorate
Canada Revenue Agency
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