In the past year, I have had a number of inquiries from non-residents looking to register a Limited Partnership (“LP”) in a Canadian province-generally Ontario.
The motivation for doing that is to have an entity that they can use for banking or credit card processing purposes that benefits from the “clean” reputation of Canada.
One firm that is in the business of forming various entities mentioned the following possible uses as well:
- Regular trading company for doing business in Canada, US, EU and other highly regulated jurisdictions
- Agent working under Sales Agency Agreement. Principal may be any legal entity including companies registered in low and zero tax jurisdictions
- Software development and IT support services, when major customers are located in Canada, US and EU
- Online based businesses (website development, marketing services, auctions, webstores, etc.)
In addition, the lifestyle generated problems are the tenacious disability to come to an erection or to uphold it extend enough lowest priced viagra for gratifying sexual deed with partner. By the mid-30’s of typical US ladies, about 25% [that is 1 in 4] appalachianmagazine.com viagra 50 mg stay infertile. Even the old men who have undergone the chemotherapy or radiation therapy to treat the prostate gland disorders also fail to get the strong erections. levitra from canada The medicine, according to a survey has proven as the perk thing to enhance the quality of an erection. cialis vs viagra 20mg hinder the activity of Pde5 which determines erectile brokenness (weakness) in men, by expanding blood stream into the penis.
The people who contacted me were not actually interested in doing business in Canada. In effect, the LP would be just a “front” or “façade”.
I am always happy to advise them that, in such situations, they would not be subject to Canadian tax nor would they even have any filing obligations in Canada. This assumes that none of the business is actually carried on in Canada. This is because a LP is not a taxable entity in Canada-all income flow-through to its members. Hence, as long as the LP is not carrying on business in Canada, the members are not, and, this have no tax obligations in Canada.
I might add that I often question whether what they envision would truly be, from a legal perspective, a LP. Although they can register a LP, would it really be one? I am no lawyer, but my understanding is that a partnership is the relation between two or more persons who are carrying on business. If no actual business is being carried on by the LP, I don’t see how it can really be one.
As one Ontario law firm stated in its website:
“Also worth mentioning is that you need to have a partnership before you can have a limited partnership. This means that the basic test for forming a partnership must exist at all times – namely, that one or more parties carry on business in common with a view to profit (see s. 3 of the Ontario Partnerships Act). In Backman v. R., [1997] T.C.J. No. 728, the Tax Court of Canada cited Pooley v, Driver (1876), 5 Ch. D. 460 and Stekel v. Ellice, [1973] 1 W.L.R. 191 to support the proposition that a “partnership” must exist under the Act in order to create a limited partnership in Ontario:
Therefore, the mere act of registration does not create a limited partnership. As one commentator has noted in the context of the Ontario Limited Partnerships Act:
While the Ontario legislation provides that a limited partnership is formed when a declaration is filed with the registrar in accordance with the legislation, this provision does not appear to dispense with underlying requirement that there be a partnership embodying a relationship between persons carrying on business with a view to profit. In other words, registration of a limited partnership will not of itself create the relationship of partnership. Registration simply confers limited liability in respect of the limited partners and renders the partnership subject to the additional provisions of the Act.
Members of a purported limited partnership must share a view to profit in order for their arrangement or relationship to be considered a partnership for the purposes of the Act.
When that case was appealed, the Federal Court of Appeal made the following comments about Alberta Limited Partnerships Act (which is akin to the Ontario Limited Partnerships Act):
‘However, I do not read these provisions as giving the limited partnership some type of existence independent of the requirement to comply with the definition of partnership.
I see nothing in the limited partnership provisions of Part 2 [of the Alberta Limited Partnerships Act] that renders the definition of partnership inapplicable to limited partnerships…’
The firm I quoted above, which offers to form LPs online, even suggested that a “one man” LP could be formed. For the legal reasons discussed above, I seriously doubt that this would actually be the case.
However, with all that said, if the purported LP is just being used for the purposes of creating a façade, as indicated, one might say “so what”? Even if it is not legally a LP, it should not really matter.
It would just mean that it is the member(s) of the purported LP that has the account, etc. There still would not be any exposure to Canadian tax.
ABOUT THE AUTHOR OF THIS ARTICLE
Michael I. Atlas, CPA,CA,CPA(ILL),TEP
Michael Atlas is one of the most prominent international tax experts in Canada. He advises accounting and law firms all across Canada, as well as select private clients (corporate and personal) worldwide. He can be reached by phone (416.860.9175) or email (matlas@TaxCA.com).