What They Are, How They’re Calculated, and Why They’re Different

If you invested in a limited partnership (LP) and received a T5013 slip showing a loss, it’s important to understand that these losses do not work like regular business losses.

At Toro Accounting, we often see investors assume they can use these losses to reduce any type of income — but the rules are much more restrictive.

Here’s what you need to know.

🔹 What Is a Limited Partnership?

A limited partnership (LP) is a business structure that includes:

✔ A general partner, who manages the business and has unlimited liability
✔ Limited partners, who are investors with limited liability

The tax rules governing limited partnerships are administered by the Canada Revenue Agency (CRA).

🔹 What Are Limited Partnership Losses?

When a limited partnership generates a loss, that loss is allocated proportionally to its partners.

However, if you are a limited partner, your deductible loss is not automatic and not unlimited.

It is restricted by your:

👉 At-Risk Amount

🔹 The Key Concept: At-Risk Amount

Your at-risk amount represents the capital that is truly economically exposed in the investment.

It generally includes:

✔ Cash invested
✔ Property contributed
✔ Income previously allocated and reinvested

It does NOT include:

❌ Loans where you do not bear real economic risk
❌ Guarantees without direct financial exposure
❌ Financing structured to eliminate personal liability

If your allocated loss exceeds your at-risk amount, you cannot deduct the full loss.

🔹 Practical Example

Total investment: $40,000
At-risk amount: $40,000
Loss allocated for the year: $65,000

You may deduct: $40,000
The remaining $25,000 is not deductible at that time.

That excess becomes a limited partnership loss carried forward.

🔹 Primary Restriction

Limited partnership losses:

✔ Cannot reduce employment income
✔ Cannot reduce income from other businesses
✔ Cannot offset unrelated investment income
✔ Do not automatically generate refunds

They are highly restricted losses.

🔹 What Happens to the Non-Deducted Portion?

Although the main focus should be on the at-risk limitation, it’s important to understand that:

• The unused portion does not disappear
• It is tracked separately
• It may be used in the future if the same partnership generates income

However, it can only offset income from that specific limited partnership.

It is not a flexible loss like other tax losses.

🔹 How This Differs From Other Losses

Many taxpayers confuse limited partnership losses with:

• Non-capital losses
• Regular business losses

The key difference is that limited partnership losses are subject to the at-risk rules and are essentially “locked” inside that specific investment.

🔹 Why the CRA Reviews These Closely

Historically, some limited partnerships were structured for aggressive tax planning.

For that reason, the Canada Revenue Agency (CRA) closely reviews:

✔ At-risk amount calculations
✔ Investment documentation
✔ Related-party loans
✔ Financing structures

Errors may result in reassessments, interest, and penalties.

🔹 Planning Before Investing

Before investing in a limited partnership, it’s important to:

✔ Understand the real tax impact
✔ Evaluate when losses may be usable
✔ Determine whether there is immediate tax benefit
✔ Assess your overall risk profile

Not all partnership losses create short-term tax savings.

💼 How Toro Accounting Can Help

At Toro Accounting, we:

✔ Review your T5013 slip
✔ Calculate your at-risk amount correctly
✔ Determine how much is truly deductible
✔ Monitor unused limited partnership losses
✔ Integrate the analysis into your broader tax strategy

Investing without understanding the tax rules can be costly. Proper technical review makes a difference.

📞 Book a Consultation

If you invested in a limited partnership and want to confirm how your losses work:

👉 Book your appointment here