Recently Released Budget Legislation Impacts Fund Structuring

Partnerships are a form of business organization often used in business, whether to bring together small groups of joint venturers or larger groups such as investors in private equity funds.  Partnerships are attractive as a form of business organization because of their general flow-through status for Canadian tax purposes.  Partnerships are particularly attractive business organizations when tax-exempt participants, such as pension funds, are investors.  However, a proposed tax change announced in the federal budget of last March is proving to be problematic for partnerships in which pension funds invest, particularly given the expansion of the original proposal that was made public in the form of draft amendments to the Income Tax Act  (Canada) (the "ITA") released on August 14, 2012 (the "Draft Legislation").