Extrapolating the decision in Green to other limited partnership cases

  • February 28, 2018

The decision in Green v R, 2017 FCA 107, was engineered to avoid an inappropriate result, but in turn could lead to other inappropriate results if applied broadly.

This sparked a discussion between the CRA and the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada late last year on what factors the Department should take into account if it proposes a legislative response to the decision. A recent submission sets out the Joint Committee’s position.

“Our perspective is that the litigation in Green arose from CRA’s position that limited partnership losses incurred by a lower tier partnership in a tiered arrangement are never deductible by any taxpayer,” the Joint Committee writes. “We believe that a measured approach would result in legislation that gives effect to the policy underlying the at-risk rules without creating artificial limitations on the deduction of partnership losses where that policy is not offended.”

The Joint Committee lays out two different approaches to the problem – amending the Act to clarify that the relevant section applies to partnerships that are members of tiered partnerships; or clarifying that the at-risk rules apply through tiered partnerships.

“Whichever approach the Department chooses, we recommend that it preserve the ability to carry over unused limited partnership losses to future years in which the upper-tier partnership has an amount at risk in respect of the lower-tier partnership.”

The Joint Committee also took the opportunity to point out a number of other anomalies in the at-risk rules and certain other rules that could be addressed as part of the Green decision.

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