Draft GST/HST Legislation Impacting Limited Partnerships and General Partners

3 novembre 2017 | Ron Choudhury | Toronto

( Disponible en anglais seulement )

On September 8, 2017, the Department of Finance (Canada) (“Finance”) introduced draft legislation deeming general partners of “investment limited partnerships” (a newly coined term) to be making a taxable supply when providing management or administrative services (a broadly defined term). This proposal, if enacted, will result in the payment (or deemed payment) of GST/HST from investment limited partnerships to general partners. The proposals will also extend the application of certain rules applicable to selected listed financial institutions to investment limited partnerships.

The proposals for presented for public consultation. The draft legislation is yet to be finalized or enacted in final form. Some changes may be expected based on the public response to the proposals.

What are Investment Limited Partnerships?

“Investment Limited Partnership” is broadly defined in the draft legislation to include any limited partnership whose primary purpose is to invest funds in property consisting primarily of financial instruments, such as shares, debt and partnership interests, and meets either of the following criteria:

(a) it is, or forms part of an arrangement or structure that is represented or promoted as a hedge fund, investment limited partnership, mutual fund, private equity fund, venture capital fund, or other similar collective investment vehicle; or
(b) 50% or more of the total value of all the interests in the limited partnership are held by listed financial institutions.

The Finance explanatory notes clarify that paragraph (a) will include tiered investment fund structures. While this definition will certainly encompass traditional limited partnerships, such as private equity or portfolio investment limited partnerships, it could also encompass traditional operating limited partnerships, such as those involving real estate or operating businesses.
The definition does not clarify when a limited partnership will be considered to be part of an arrangement or structure promoted in the manner noted above (i.e., as hedge funds etc.).

Proposed Legislation

Pursuant to the newly proposed subsection 272.1(8) of the Excise Tax Act (Canada) (the “ETA”) the supplies of any management or administrative service by a general partner to an investment limited partnership will be considered a separate taxable supply subject to GST/HST. This is done by deeming such services to be rendered by the general partner outside its status as a member of the partnership and otherwise than in the course of the partnership’s activities. The supply of such services will be deemed to be at fair market value (raising potential valuation concerns) such that the GST/HST will be imposed on that fair market value.

“Management or administrative service” is broadly defined under subsection 123(1) of the ETA to include an asset management service, which is further defined to encompass most activities performed by a general partner, such as managing, researching or analyzing the assets or liabilities of the limited partnership, or determining asset acquisitions or dispositions.

These new rules will apply to any consideration for a supply of services that becomes due on or after September 8th, 2017, or is paid on or after that day without having become due, or if all of the consideration for a supply of the service becomes due or was paid before September 8th, 2017 unless the supplier did not, on or before that day, charge, collect or remit any amount as or on account of tax under Part IX of the ETA in respect of the supply.


The draft legislation, as and when enacted, can significantly impact planning with respect to partnerships and add to the amount of unrecoverable GST/HST of investment limited partnerships (particularly given the additional proposed changes extending the selected listed financial institution rules to these partnerships). Limited partnership structures that may fall within the definition of investment limited partnerships (now or in future) should seek legal advice on the impact of these rules.