Webinar July 2026: Real Estate Investment Fundamentals: Partnership Structures & Tax Essentials
Partnership, Corporation, or Joint Venture: Choosing the Right Structure — and Understanding the Tax
For July's session, Trainex Hub welcomed Amir Fathollahzadeh, an accounting and advisory professional at Shimmerman Penn specializing in tax planning, corporate structures, and the real estate development sector, along with his tax partner Mark McGinnis. Together, they walked through one of the most consequential decisions any real estate developer or investor will make: how to structure a deal — and what the tax code rewards and punishes depending on that choice.
The session was practical and direct. After 45 years serving builders, developers, and investors, Shimmerman Penn has seen most scenarios play out. The message that ran through the hour: the limited partnership has become the dominant vehicle in Canadian real estate for good reasons, but it comes with rules that catch even experienced operators off guard.
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Three Structures, One Clear Winner
Fathollahzadeh opened with a framework built around three common ownership structures — corporations, joint ventures (co-ownership), and limited partnerships — walking through the advantages and trade-offs of each before arriving at a clear conclusion.
Corporations offer simplicity and immediate creditor protection, and they carry no restrictions on the capital cost allowance (CCA) a developer can claim on a rental property. But they tax twice — once at the corporate level, once when earnings flow to shareholders — and critically, losses generated in the early stages of a project are locked inside the corporation. Investors cannot use them.
"If the corporation is experiencing losses in the first couple of years of development, those losses are trapped inside the corporation. A shareholder cannot take advantage of those losses. So there are real restrictions there."
Joint ventures solve the double-taxation problem through flow-through treatment — the JV itself pays no tax; income and losses pass directly to each co-owner. But they offer no creditor protection, which pushes most participants to hold their JV interest through a corporation anyway, layering the structure back toward the problem it was meant to solve. HST filing obligations for joint ventures are also notably cumbersome.
The limited partnership threads the needle: flow-through taxation, limited liability capped at the amount invested, and a clean mechanism for bringing in outside capital without surrendering management control. The numbers bear this out.
"From my perspective and our practice, we see probably 95% of projects now using the LLP structure."
How an LP Actually Works
For anyone coming to the structure for the first time, Fathollahzadeh walked through the anatomy of a typical LP deal. At the top sits the general partner — a corporation controlled by the founders or developers — which holds a small percentage of LP units but carries 100% of the management responsibility and creditor risk. A separate bare trustee company holds legal title to the property in trust for the LP, with a trust agreement formalizing that arrangement. Limited partners — the investors — purchase units based on the capital they're contributing, vote only on routine annual matters, and stay out of day-to-day decisions.
The GP handles everything operational: deal sourcing, construction management, financing, reporting, property management. In exchange, investors get exposure to a larger project than they could access alone, creditor protection capped at their investment, and the ability to hold units either personally or through a corporation.
"From a developer standpoint, they like this structure because they can maintain full control over the management of the project. From an investor standpoint, you can diversify without any type of personal liability."
On the practical side: LP agreements are significantly more involved than a shareholders' agreement, covering capital contributions, income and loss allocation, distribution mechanics, capital call provisions, and exit scenarios. The first one is expensive to draft. But Fathollahzadeh offered a straightforward upside.
"If you are a developer that's going to be doing multiple LLPs, it does become your template. The first one's costly, but then the other ones after that, you can use it as a template and just kind of copy and paste."
The Tax Mechanics Every Investor Needs to Know
The session's most technically dense section covered four tax concepts that define how money actually moves through an LP — and where things can go wrong.
Flow-through and income character preservation. Whatever type of income the LP earns — business income, rental income, capital gains — it passes to partners in the same form. Business income in, business income out. This matters because each income type is taxed differently, and the LP preserves that distinction all the way to the investor's return.
Loss utilisation. Early-stage development projects routinely generate losses as consulting fees, planning costs, and other soft costs are expensed. In an LP, those losses flow directly to investors, who can use them to offset other income — employment, investment income, or corporate income — reducing their tax bill in the year the loss occurs.
At-risk rules. Losses are only claimable up to the amount a partner has at risk — essentially, what they've invested. If an investor puts in $10,000, they can claim up to $10,000 in losses. Any excess is deferred until the LP generates offsetting income. The LP is responsible for tracking each investor's at-risk amount annually and reporting it on the T5013 slip.
Income versus distributions — and phantom income. This distinction trips up investors and GPs alike. When the LP reports income, each investor owes tax on their allocated share — regardless of whether cash has been distributed. If a GP reports a large income year but delays distributions, investors face a tax bill with no corresponding cash in hand.
"Your investors are going to become very, very angry if there's a big income in one year but for whatever reason there was no distribution — because they have to pay tax on that, and that tax might have to come out of their own pocket. As a founder, as a general partner, you really have to be conscious of timing your distributions properly."
The Negative ACB Trap
One of the session's sharpest moments was Fathollahzadeh's walkthrough of negative adjusted cost base — a quirk in the tax rules that creates a temporary double-taxation situation when an LP distributes income in the same year it's earned.
The issue stems from a timing mismatch: for tax purposes, income allocated to a partner doesn't increase their ACB until January 1st of the following year, but distributions reduce ACB immediately. So if an LP earns $100,000 and distributes it in the same year, a partner's ACB can go negative — and that negative amount triggers a capital gain on top of the ordinary income they're already reporting.
The practical workaround: CRA has an administrative position allowing LPs to characterize year-end payouts as loans rather than distributions, settling them shortly after year-end when the ACB timing resets. Fathollahzadeh flagged this as something investors will likely encounter without always understanding why.
"You might see this from your LLP: 'We're distributing $100,000 of money, but this $100,000 is a loan to you, not a distribution.' That's why they're doing this — because of the negative ACB situation. Hopefully it's good to see that CRA has this administrative policy to get around that."
Land Transfer Tax: The Hidden Complication
The session also addressed a consequence of the LP's investor flexibility that developers don't always anticipate. While the LP structure makes it easy for investors to enter and exit, any transfer of more than 5% beneficial interest in an LP that holds property can trigger a land transfer tax obligation — calculated on the fair market value of the property at the time of transfer.
During Q&A, attendee Sadjad Keshavarz raised a sharper version of the question: what if three separate transfers of 4% each occur in the same fiscal year, each below the 5% threshold but totalling 12%? Mark McGinnis flagged that an anti-avoidance rule is likely to apply, and both advisors recommended engaging a lawyer on the specifics before structuring any investor changes.
When the LP Isn't the Right Tool
Not every project calls for the complexity of a full LP structure. Asked about multiplex projects — shorter-hold developments with a smaller investor group — Fathollahzadeh was practical: for a two-year hold with few participants, a joint venture or even a corporation may be more cost-effective, particularly if the upfront cost of an LP agreement isn't justified by the scale of the deal.
"In those situations — a shorter-term project, a small group of investors who know each other — I would say either a joint venture or a corporation. If the cost of setup is significant relative to the project, then maybe look at a joint venture, as long as you understand the creditor risks involved."
On LP-GP conflicts, Fathollahzadeh was equally direct: disputes are almost always a function of project performance, not structural design. Capital calls that can't be met, timelines that slip, financing constraints — these are where the relationship between founders and investors gets tested. The answer, he said, is investor mindset going in.
"As an investor, when you come in, you have to come in with the proper perspective that you are an investor — and as long as the GP is fulfilling its obligations based on the project parameters, you can't really say anything more to it. You're a silent investor. You're not part of management, and you have to think about it like that."
The closing message was consistent with the session's overall tone: structure matters, tax rules have real teeth, and the developers and investors who understand both are better positioned to avoid the most common — and most costly — mistakes in Canadian real estate.
For more information:
Saman Davari
Project Manager
Saman.davari@trainex.ca