Application of CRA's two-step approach to entity classification resulted in a finding that a Delaware LLC governed by the Delaware Limited Liability Company Act that is converted into a limited partnership pursuant to s. 17-217 of the Limited Partnership Act will be considered to have become a partnership for Canadian income tax purposes, so that there is a disposition of the property of the LLC and of the shares in the LLC. CRA stated:
With regard to the classification of a DLP, it has been the CRA's long-standing position that, notwithstanding subsection 17-201(b) of the LPA which provides that a limited partnership is a separate legal entity, an entity formed under the DRUPA (Title 6, Subtitle II, Chapter 15 of the Delaware Code) or the LPA closely resembles a Canadian partnership under Canadian common law, with the effect that an entity governed by the DRUPA or the LPA would be treated as a partnership for Canadian income tax purposes.