On December 13, 2018, legislation was passed implementing amendments to the Excise Tax Act (Canada) (the “ETA”) first announced in September 2017 affecting GST/HST on management and administrative services provided to private equity funds and other funds (referred to in the legislation as “investment limited partnerships” or “ILPs”) by their general partners. These new rules negate certain tax planning using general partner distributions in lieu of management fees that became popular after Ontario adopted the HST in 2010. Affected funds now have until February 11, 2019, to file an election that may mitigate the impact of the rules for 2018. Going forward, the ILP rules will add administrative complexity to GST/HST reporting for most investment funds organized as limited partnerships.
Fund managers and their advisors should consider how the ILP regime will affect their funds. In particular: