Relief With Regard to Investments in a Limited Partnership by a Registered Charity
As a rule, a registered charity that carries on a business will have its registration revoked, unless it is a related business. This also applies to a registered charity that acquires or holds an interest in a partnership, as it is then considered to be carrying on a business.
However, such a charity can benefit from relief whereby it is not considered to be carrying on a business simply because it holds or acquires an interest as a member in a limited partnership if it meets all of the following conditions:
- Its responsibility as a member is limited by the law governing the partnership agreement.
- The interest held by the charity and all of the bodies with which it does not deal at arm's length does not exceed 20% of all members' interests in the limited partnership.
- It deals at arm's length with the general partners in the limited partnership.
This measure applies to all registered charities, except charitable organizations or public foundations that carry on a related business, and concerns investments in limited partnerships made or acquired after April 20, 2015.
A registered charity that holds or acquires an interest in a limited partnership but that does not meet the above-mentioned conditions is considered to have a direct interest in the limited partnership and, consequently, to be carrying on a business.
It is therefore important that all registered charities specify whether they hold a direct or indirect interest in a limited partnership, as well as their percentage interest, on line 9 of their annual information return.
A registered charity in one of the following situations is not considered to be holding a direct interest in a limited partnership:
- It holds an interest in a mutual fund trust, investment corporation or unit trust that holds an interest in a limited partnership.
- It has reached an official or unofficial agreement with other parties that does not give it an interest in a limited partnership (for example, a joint venture agreement or a partnership agreement).