When asked whether loans by an Ontario limited partnerships to limited partners would be treated as a loan for purposes of s. 96(2.2)(c), the Directorate indicated that:
- The reference in s. 96(2.2)(c) to an “amount owing” by a partner to a partnership does not deem partner debts to be valid, but instead merely “suggests that the legislator believed that at least in certain jurisdictions, there could be a debtor and creditor relationship between a limited partner (debtor) and a limited partnership (creditor)” – for instance s. 60(1) of the Partnership Act (B.C.) “specifically provides that a limited partner may borrow money from a limited partnership.”
- Accordingly, in light of s. 8.1 of the Interpretation Act, whether the payments by the limited partnerships to limited partners were treated as loans for purposes of ss. 96(2.2)(c) and 53(2)(c)(v) (rather than distributions) was to be determined based on the laws of Ontario.
- Regarding the common law, the Directorate stated (adverting to the Rye v. Rye/ Klein line of cases):
It is well established at common law that a man cannot contract with himself and that a partner cannot contract with a partnership of which he is a member. Therefore, it is necessary to determine whether a limited partnership can make a loan to a limited partner pursuant to statutory law, thereby overriding such long-standing common law rule.
- The Directorate did not refer to s. 12 of the Limited Partnerships Act (Ontario) (a truncated version of s. 60(l) of the B.C. Act providing: “A limited partner may loan money to and transact other business with the limited partnership … .”) – but indicated that the doubts expressed in 2016-0637341E5 as to whether it was possible under the civil law for a limited partnership to make loans to a limited partner were not meant to apply to Ontario limited partnerships.