A limited partnership whose primary purpose is to invest funds in property consisting primarily of financial instruments, and that is notably represented or promoted as a hedge fund, private equity fund, venture capital fund or other similar collective investment vehicle, is considered an investment limited partnership (ILP) for GST/HST and QST purposes and, as such, is subject to various particular rules.

We’ve compiled a list of key GST/HST and QST rules that investment limited partnerships should know about to reduce their tax cost and compliance burden.¹

• An ILP is required to pay GST/HST on the fair market value (FMV) of the management or administrative service provided to it by its general partner (GP). The FMV might, in certain circumstances, include the carried interest payable to the GP.
• An ILP cannot claim, by way of an input tax credit (ITC), the GST/HST paid on its expenses, unless it makes supplies subject to GST/HST, and/or it has non-resident Canadian investors, and/or non-resident Canadian investments and it satisfies all the prescribed conditions.
• As an ILP is generally qualified, under federal or provincial laws, to sell or distribute its units in any Canadian province, including Québec, it is usually a selected listed financial institution (SLFI) for GST/HST and QST purposes.
• The qualification of an ILP as an SLFI (ILP/SLFI) significantly increases its GST/HST compliance burden, more particularly since an SLFI is subject to the special attribution method (SAM).
• The SAM involves complex calculations. The purpose of the SAM is for the ILP/SLFI to pay the provincial part of the HST (the provincial part) and the QST payable on its inputs based on its percentage of activities (as established pursuant to the Excise Tax Act) in each participating provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island) and Québec, rather than on the actual use of such inputs.
• In order to comply with the SAM rules, an ILP/SLFI is subject to specific information sharing rules. As such, each year, it must review the status of its investors and request certain information from some of them (depending on their status) relating to, notably, the units that the given investor holds in the ILP/SLFI. Failure to obtain the required information may result in a higher amount of HST (provincial part) and QST payable.
• An ILP/SLFI that voluntarily chooses to register for GST/HST purposes can generally elect to have an annual reporting period, which should significantly reduce its compliance burden. Indeed, an annual ILP/SLFI filer is required to do the SAM calculations only once a year and file one annual GST/HST/QST return by June 30 of the year following the given calendar year. If not registered, an ILP/SLFI should file monthly interim GST/HST returns, which also means monthly interim SAM calculations.
• An ILP/SLFI that voluntarily chooses to register for GST/HST and/or QST purposes must do so with the Canada Revenue Agency (CRA) as the CRA is responsible to administer both the GST/HST and the QST filings of an ILP/SLFI.
• Various elections are available to an ILP/SLFI which might impact the result of its SAM calculations and the right of an ILP/SLFI to claim an ITC.

Given the complexity of the applicable rules a more thorough review of the investors and investments of the ILP/SLFI may reveal an opportunity to reduce its GST/HST and QST costs and its compliance burden.

For more information on this topic, please contact your Dentons Indirect Tax advisors.

[1] As the same rules apply in the QST regime, we generally refer below only to the GST/HST rules for the sake of brevity.