The Canada Revenue Agency (“CRA”) has addressed the question of characterization of US LLLP, by setting out the principles that it would rely on, to make that characterization.


Certain US States have enacted legislation to enable LLPs. One of the unique features of LLLPs is that no partner is liable for the partnership debts. Considering this, how would the CRA view LLLPs? Would the CRA consider an LLLP to be a foreign partnership, a foreign corporation or some other type of arrangement?

CRA’s Response

The CRA has not previously had to consider whether an LLLP formed under US state legislation is a partnership, a corporation or some other entity for purposes of the Income Tax Act. As stated by the Supreme Court of Canada in Philip Douglas Backman v. The Queen, 2001 SCC 10, Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all the surrounding circumstances. That the alleged partnership must be considered in the totality of the circumstances prevents the mechanical application of a checklist or a test with more precisely defined parameters. The CRA’s approach to entity classification is a two-step approach. That is, to determine the status of an entity for Canadian tax purposes, we would: 1) Examine the characteristics of the foreign business association under foreign commercial law and any other relevant documents, such as the partnership agreement or other contracts; and 2) Compare these characteristics with those of recognized categories of business associations under Canadian commercial law in order to classify the foreign business association under one of those categories. The CRA would consider the classification of an LLLP in the context of an advance income tax ruling. Taxpayers should include with their request a complete description of the characteristics of the LLLP, their analysis as to its proper classification, a copy of the legislation under which the LLLP is to be created, and any other relevant documents, such as the partnership agreement or other contracts.