Budget 2018: A Blast From The Past – Tiered-Partnership Trap Reinstated

Budget 2018 proposes to tighten the so-called "at-risk" rules in the Income Tax Act (Canada) (the "Tax Act") to limit the losses that may flow through a tiered limited partnership structure.  The proposed amendments have been introduced to overrule recent case law, and to bring the law into line with the administrative practices of the Canada Revenue Agency (the "CRA") that prevailed prior to 2016.

Background

The "At-Risk" Rules

The "at-risk" rules effectively restrict the losses allocated by a partnership to a limited partner that may be deducted by the limited partner in computing its taxable income.  The Tax Act generally provides that a limited partner may not deduct losses allocated to it by a limited partnership to the extent that the losses exceed the amount that the limited partner has invested in the partnership.