Limited Liability Companies

Information Bulletin 4009R, March 2004

Application

This bulletin replaces Information Bulletin Number 2753 originally published April 1997.

The bulletin sets out the policy of the Corporations Tax Branch (Branch) regarding the status of a U.S. limited liability company (LLC) for the purposes of the Corporations Tax Act (Ontario) (CTA). It is important to determine the status of an LLC because the application of many of the provisions of the CTA is dependent on the classification of an entity (i.e., corporation, partnership).

Introduction

1. An LLC is an unincorporated organization, created under the laws of a particular state of the United States, that can generally offer its members the features and benefits of both a corporation (e.g., separate legal personality, limited liability to its members, etc.) and a partnership (e.g., flow-through taxation for U.S. tax purposes where the LLC is treated as a partnership under the Internal Revenue Code).

Corporation Versus Partnership

2. For Canadian taxation purposes, the distinction between a corporation and a partnership is an important one. A corporation is a separate, taxable legal entity, whereas in the case of a partnership, it is generally the individual partners who are subject to tax, not the partnership itself.

"Corporation" for Federal Tax Purposes

3. Federal Interpretation Bulletin IT-343R, issued by the Canada Revenue Agency (CRA), describes a corporation as an entity created by law, having a legal personality and existence separate and distinct from the personality and existence of those who caused its creation or those who own it. Where an entity has such a separate identity and existence, the CRA will consider it to be a corporation for taxation purposes under the Income Tax Act (Canada) (ITA).

State LLCs Considered as Corporations

4. Based on the description of a corporation in paragraph 3, the CRA has reviewed the following statutes, and has determined that LLCs formed thereunder are to be treated as corporations for purposes of the ITA:

   Delaware (*)
   Chapter 18, subtitle II of Tier 6 of the laws of Delaware

   Florida
   Florida Limited Liability Company Act

   Indiana
   Indiana Business Flexibility Act

   Kentucky
   Chapter 275 Limited Liability Companies (known and cited
   as the "Kentucky Limited Liability Company Act").

   Michigan
   Michigan Limited Liability Company Act

   New Hampshire
   New Hampshire Revised Statutes Annotated, Chapter 304C

   New York
   Chapter 34 of the Consolidated Laws of New York (1994)
   (known and cited as the "New York Limited Liability Company Law")

   Ohio
   Section 1705 of the Ohio Revised Code

   Oregon
   Oregon Revised Statutes, Chapter 63

   Tennessee
   Tennessee Limited Liability Company Act

   Texas
   Texas Limited Liability Company Act

   Wyoming
   Wyoming Limited Liability Company Act

   (*) Except partnerships formed under the Delaware Revised Uniform Partnership Act. The CRA considers such entities to be partnerships for Canadian tax purposes.

Ontario Treatment of LLCs

5. The CTA parallels the ITA in its definition of a corporation. It has also been the practice of the Branch to follow federal interpretation bulletins in cases where the CTA parallels the ITA.
6. It is therefore the position of the Branch to treat LLCs formed under the statutes of those states mentioned in paragraph 4, as corporations for the purposes of the CTA. Several other jurisdictions now have legislation or proposed legislation designed to form LLCs based on one of the models in the above-noted states. Based on the current legislation, the Branch will continue to follow any further determinations made by the CRA relating to the status of an LLC for the purposes of the ITA.

For More Information

For further information, please contact Desk Audit, general tax enquiries.

• Pickering: 905 837-3888 905 837-3889
• Français: 905 837-3907
• Toll-free: 1 866 805-7702 ext. 3888; Français poste 3907
• Fax: 905 837-3800

Hours of Service: 8:30 am to 5:00 p.m. or visit our website at: ontario.ca/revenue

© Queen's Printer for Ontario, 2004

ISBN 0-7794-3339-4