Earlier this year the Canada Revenue Agency (“CRA”) announced its new administrative position that limited liability partnerships (“LLPs”) and limited liability limited partnerships (“LLLPs”) formed under the laws of Delaware and Florida are properly viewed as corporations for Canadian income tax purposes. It is widely expected that LLPs and LLLPs formed in other jurisdictions will receive similar treatment. LLPs and LLLPs, and the Canadians who invest in them, should determine the impact of this change in CRA policy and, if necessary, evaluate their alternatives to mitigate the potentially adverse income tax results.

Significant tax inefficiencies can result from LLPs and LLLPs being treated as transparent in the U.S. and opaque in Canada. Under the new regime, Canadian members of a LLP or LLLP will continue to be subject to U.S. taxation on their allocated share of partnership income; however, because the CRA now considers the U.S. tax to be paid by a corporation, the member’s ability to claim a foreign tax credit in Canada may be deferred until earnings are distributed, or otherwise restricted. This mismatch may lead to double taxation. The new policy can also create additional compliance obligations and critical changes to the way that investments in LLPs and LLLPs are taxed in Canada.

As an administrative concession, the CRA is providing transitional relief where a LLP or LLLP converts to either a general partnership or a limited partnership before 2018. The following conditions must be satisfied to qualify for this relief:

·the entity was formed and began to carry on business before July 2016;

· the entity and its members clearly intended for the entity to be treated as a partnership for Canadian income tax purposes; and

·neither the entity nor any member of the entity has taken the position that the entity is anything other than a partnership for Canadian income tax purposes;

If these conditions are satisfied, (1) the entity will be treated as a partnership for Canadian income tax purposes from the time of its formation, and (2) depending on the circumstances, including applicable domestic law, the conversion from a LLP or LLLP to an entity which CRA recognizes as a partnership may occur on a tax-free basis.