Delaware Revised Uniform Partnership Act
In the Income Tax Technical News No. 20, dated June 14, 2001, the CRA stated that the attributes of an entity formed under the Delaware Revised Uniform Partnership Act (“DRUPA”) more closely resemble those of a partnership under Canada’s common law than those of a Canadian corporation, and that accordingly, an entity governed by DRUPA would generally be treated as a partnership for Canadian income tax purposes. The CRA reiterated this view at the 2002 CTF annual conference (later published in Income Tax Technical News No. 25, dated October 30, 2002) that DRUPA partnerships would be treated as partnerships under the Act provided they carried on a business for profit.
Question 1
At the 2005 IFA conference, the CRA mentioned it was revisiting whether a limited partnership governed by DRUPA was a partnership or a corporation for Canadian tax purposes. Could you explain why the CRA would choose to revisit this issue?
Response 1
It may appear unusual for the CRA to revisit a question that was dealt with so recently. Earlier this year, the Income Tax Rulings Directorate was asked to review a relatively complex series of transactions that involved a DRUPA entity, and one of the questions that came up in the course of this review was whether the CRA position in respect of DRUPA was correct in law. Following our review, the Directorate concluded that the existing position should stand and that the separate legal entity clause contained in foreign partnership legislation should not, in and by itself, preclude an entity from being treated as a partnership for purposes of the Act. However, entities governed by the DRUPA that are created for non-profit purposes are not considered partnerships for the purposes of the Act.
Question 2
Would this position apply equally to a partnership that was formed under the Delaware Revised Uniform Limited Partnership Act (“DRULPA”), instead of the DRUPA.
Response 2
This position should also normally apply to a partnership that was formed under the DRULPA provided its members carry on business in common with a view to profit.