May 04, 2020
Most Canadian resident investment limited partnerships (ILPs) will be considered to be a Selected Listed Financial Institution (SLFI), starting January 1, 2019 (i.e. the 2019 fiscal year). This will require the ILP to adjust its GST/HST and QST liabilities for the 2019 fiscal year by filing a SLFI return by June 30, 2020.
To comply with the SLFI rules, ILPs should have obtained certain information from their unitholders, including, for certain investors, their respective “investor percentages” as of September 30, 2018 or, if an election is made, September 30, 2019. The ILP is also required to calculate the federal and provincial component of GST/HST and QST that were paid or payable throughout the year, and determine whether it can claim input tax credits, which may require the ILP to file an election pursuant to section 225.4 of the Excise Tax Act (ETA).
An ILP is a limited partnership:
To determine a person’s “primary purpose,” the partnership’s intentions and its principal activity should be considered. A person’s intentions are generally determined based on the taxpayer’s whole course of conduct, based on an objective review of their conduct and the steps they took to carry out their intentions. A person’s “principal activity,” as discussed by the Tax Court of Canada in College of Applied Arts and Technology Pension Plan (2003 TCC 618), depends on how important a particular activity assists the person in achieving its overall business objectives and goals when compared to its other business activities. To determine a person’s principal activity, the Canada Revenue Agency (CRA) generally considers:
In situations when a limited partnership directly owns real estate, it may not be considered to be an ILP because its primary purpose is to own the real estate; however, in situations when a limited partnership is a holding partnership (with underlying partnerships, corporations or trusts that own the underlying real estate), the partnership’s primary purpose may be to invest funds in financial instruments and therefore cause the limited partnership to be an ILP. In GST/HST Notice No. 308 (released July 2018), the CRA confirmed that a limited partnership that acts as a collective investment vehicle to indirectly own real estate by acquiring interests in other partnerships may be an ILP.
A SLFI is a “listed financial institution” that has a permanent establishment in:
The definition of a “listed financial institution” includes mutual fund trusts, mutual fund corporations, unit trusts, investment corporations, corporations that are exempt from income tax and, as a result of recent amendments, ILPs.
An ILP will have a “permanent establishment” in a particular province if:
An ILP that is a SLFI will be required to adjust its net tax in accordance with the special attribution method (SAM) formula, which generally results in the SLFI paying a “blended rate” of GST/HST and QST based on the percentage of its unitholders that reside in the HST provinces and Quebec.
ILPs will be required to file the annual GST/HST and QST Final Return for Selected Listed Financial Institutions (the SLFI Return) by June 30, 2020. In filing its SLFI Return, the ILP should consider:
We recommend that ILPs that qualify as SLFIs register for GST/HST and QST purposes with an annual filing frequency, because this will eliminate the requirement to perform the SAM calculation on a monthly basis. ILPs can register for GST/HST and QST purposes by filing Form RC7301, Request for a business number and certain program accounts for certain selected listed financial institutions.
There are also certain elections that ILPs can make, such as the “reporting entity election,” the “consolidated filing election” and the “tax adjustment transfer election;” however, we generally do not recommend that the ILP make these elections.
An ILP must determine its PAP based on:
This generally requires the ILP to request information from its investors in writing. The required information depends on the particular investor and whether they are an individual, specified investor, selected investor, qualifying investor, or an investor of another class that is not separately referenced in the information sharing rules provided in the Selected Listed Financial Institutions Attribution Method (GST/HST) Regulations. The ILP must obtain this information by December 31. Failure to do so may result in the unitholders being deemed to be resident in the province with the highest HST rate (e.g. Nova Scotia).
The default attribution point for an ILP, when filing the 2019 SLFI Return, is September 30, 2018; however, to the extent the ILP did not obtain this information before December 31, 2018, it can make an election that allows it to use September 30, 2019 as its attribution point.
Although most ILPs do not make taxable supplies on which they collect and remit GST/HST, an ILP may undertake certain activities which allow it to claim ITCs, including making zero-rated supplies of financial services to non‑residents or, pursuant to proposed amendments to section 186 of the ETA, holding shares or debt in related corporations whose property (all or substantially all) was last acquired for use exclusively in a commercial activity. As deeming rules may preclude an ILP from claiming ITCs on expenses that are not being incurred exclusively in a commercial activity, an ILP should also consider filing certain elections under section 225.4 of the ETA.
ILPs that are a resident of Canada should closely monitor whether they are deemed to be a non-resident on the basis that the total value of all interests in the partnership held by non-resident members of the partnership (other than prescribed members) is 95% or more of the total value of all interests in the partnership. The primary benefit of being a non-resident is that most services purchased by an ILP should be zero-rated, provided the ILP does not have a permanent establishment in Canada.
Limited partnerships whose property is comprised primarily of financial instruments should consider whether they are an ILP. If they are, they should then consider the resulting GST/HST implications, including whether the ILP is: