How GP/LP Partnerships Work in Canadian Real Estate Investing

In a Canadian real estate limited partnership, the general partner (GP) runs the deal and carries unlimited personal liability for its debts. Limited partners (LPs) contribute capital and cap their liability at what they invest, as long as they stay out of day-to-day control (Limited Partnerships Act, R.S.O. 1990, c. L.16, s. 13). The GP is typically a numbered company controlled by the sponsor; LPs buy units representing an indirect stake in the property, not the property itself. Economics flow through a waterfall: LPs get their capital back plus a preferred return first, then profit above that hurdle splits between LPs and the GP's promote. None of that split is fixed by statute; it's all set out in the limited partnership agreement (LPA).

This page works through the mechanics end to end: how the entity is formed, who can legally buy units, how the dollars actually split, who is exposed if something goes wrong, and how CRA taxes what each side receives. Toronto multiplex raises run through it as the working example, since a duplex-to-fourplex build is now one of the most common reasons a GP brings outside capital into a small Ontario deal.

What GP and LP Actually Mean in a Canadian Real Estate Deal

An Ontario limited partnership needs at least one general partner and at least one limited partner. The general partner controls the business and assets and holds essentially the same rights and obligations as a partner in an ordinary partnership, including unlimited personal liability for the LP's debts. The limited partner's liability is capped at what they contributed or agreed to contribute, provided they don't cross into managing the business.

A subtlety that catches first-time sponsors: an Ontario LP is not a separate legal entity the way a corporation is. It's a statutory relationship between partners. That means contracts signed for the LP's business (the purchase agreement, the construction contract, the mortgage commitment) are effectively contracts with the general partner. The LP itself doesn't sign; the GP does, on the partnership's behalf.

Why Toronto Multiplex Raises Default to the GP/LP Structure

Private real estate raises in Canada, multiplex and infill deals included, are typically structured as limited partnerships where investors buy LP units representing an indirect equity interest in the property, while the GP or an affiliated manager makes the acquisition, financing and disposition calls. LPs aren't voting on which contractor gets the framing package; they're buying exposure to the outcome.

Toronto's own zoning rules are part of why this structure keeps showing up on multiplex deals specifically. Since May 12, 2023 (zoning by-law amendment) and June 14, 2023 (Official Plan Amendment 649), the city permits duplexes, triplexes and fourplexes as-of-right on residential lots across Neighbourhoods-designated land (RD, RS, RT zones): up to four units, no rezoning application required. That turns a wide swath of Toronto lots into small multi-unit projects overnight, exactly the scale where a sponsor needs outside equity but doesn't need (or want) a full commercial fund. A GP/LP raised around one property, or a small pool of them, fits.

Closed-end LP funds in this space generally raise capital in one or more rounds up front and run a fixed term of roughly five to twelve years, with few or no unit redemptions along the way. LPs are locked in for the build-and-hold or build-and-sell cycle, not free to exit on demand.

How an Ontario Limited Partnership Is Formed and Governed

Forming an Ontario LP starts with the general partner filing a Declaration of Limited Partnership with the Ontario Business Registry, disclosing the partnership's name and the name and address of each general partner. The government filing fee is $210 online or by mail, with immediate processing online versus about 15 business days by mail; a late renewal costs $360. Declarations are commonly renewed every five years to keep the registration active.

The declaration is a public, administrative filing. It doesn't disclose the deal economics: the preferred return, the promote, the capital call mechanics. Those live entirely in the LPA, a private contract between the GP and each LP, the document that actually governs the relationship.

Who Can Invest: Securities Exemptions for LP Units

LP units sold without a prospectus generally rely on an exemption under National Instrument 45-106. The most common is the accredited investor exemption. For an individual, that typically means net income before tax over $200,000 in each of the two most recent years ($300,000 combined with a spouse) with a reasonable expectation of keeping it up, or net financial assets over $1,000,000, or net assets of at least $5,000,000.

Sponsors who want to reach investors below those thresholds often use Ontario's offering memorandum exemption instead, which trades a lower bar for heavier disclosure. Issuers distributing under the OM exemption must deliver audited annual financial statements to unit holders and the OSC, along with a Form 45-106F16 Notice of Use of Proceeds, within 120 days of the issuer's financial year-end.

Splitting the Economics: Preferred Return, Promote, and Waterfall

Three terms do the work here. The preferred return (or "pref") is the minimum annualized return LPs receive before the GP earns any share of profit. The promote (or carried interest) is the GP's cut of profit above that hurdle, in exchange for finding, structuring and running the deal. The waterfall is the order in which distributions actually flow through those tiers.

Nothing about the split is fixed by law. The preferred return rate, the promote percentage and the fee schedule are negotiated deal by deal, then disclosed in the LPA. Anyone comparing two LP offerings needs to read the actual waterfall clause, not assume a market norm.

Industry materials commonly reference an 8% preferred return paired with an 80/20 profit split above the hurdle as a starting point for negotiation, but no Canadian regulator or statute sets that figure; treat it as illustrative, not a benchmark. Here's how that structure would move money on a hypothetical $2,000,000 raise that returns $2,600,000 to investors at exit, purely to show the mechanics:

Waterfall tier	What happens	Illustrative amount
Tier 1: Return of capital	LPs get their $2,000,000 back first	$2,000,000 to LPs
Tier 2: Preferred return	LPs receive an 8% cumulative pref before any promote	$160,000 to LPs
Tier 3: Promote split	Remaining profit splits 80/20 between LPs and GP	$352,000 to LPs / $88,000 to GP

Those figures are a worked example only, built to show how a pref-then-split waterfall moves dollars. The actual rate, split and even the number of tiers vary by deal and are set out in the LPA you sign, not in any regulation.

Fees GPs Charge and Which Ones LPs Should Question

The promote isn't the only line item. A GP or manager commonly also charges a management fee (based on committed or invested capital in a closed-end fund, or on net asset value in an open-end fund), plus transaction-linked fees: for acquiring or disposing of an asset, for arranging financing, or for providing a principal's personal guarantee on the fund's financing.

None of these are capped by law, so the questions worth asking an LPA are: is the management fee charged on committed capital (payable whether or not it's deployed) or invested capital only; do transaction fees stack on top of the promote or reduce it; and does the GP earn a fee for a personal guarantee that also reduces their own risk. None of these are wrong to charge. They're just terms that should be visible and justified, not buried in a fee schedule appendix.

Liability and Control: What the GP Signs That the LP Never Does

The liability split is the structural reason this vehicle exists.

	General partner	Limited partner
Liability for LP debts	Unlimited, personal	Capped at capital contributed or committed
Control of business and assets	Full control	None, by design
Signs contracts, loans, guarantees	Yes, in the LP's name	No
Fiduciary duty owed	Owes duties to the LP and its LPs	Is owed duties, doesn't owe them
Risk of losing liability shield	Not applicable, already unlimited	Yes, if they take part in controlling the business

Section 13 of Ontario's Limited Partnerships Act is the operative rule for that last row: a limited partner is not liable as a general partner would be unless, in addition to exercising the rights and powers of a limited partner, they take part in controlling the business. Step into that role, even informally, and the liability cap disappears.

The GP's fiduciary duty runs the other way: it owes duties to the partnership and its limited partners, assessed against whatever the LPA says the GP was supposed to do. If an LP believes those duties were breached, the usual route is a derivative or direct action against the GP, not hands-on intervention, since intervening is exactly what risks the LP's own liability shield.

How CRA Taxes GP and LP Income

A limited partnership itself doesn't pay income tax in Canada. It's a flow-through entity: income or loss earned in a fiscal period is allocated to the general and limited partners and reported annually to each partner and to CRA on a T5013 Statement of Partnership Income.

For limited partners specifically, loss deductions are capped by the "at-risk amount", shown in Box 105 of the T5013 and built from adjusted cost base plus allocated income. Losses above that amount don't vanish; they become "limited partnership losses". The current year's excess shows up as the amount available for carryforward, Box 108, and carries forward indefinitely. In a later year, once the partner's Box 105 at-risk amount is positive again, the eligible portion appears in Box 109 and is deducted on Line 25100.

Where GP/LP Deals Go Wrong

Most of the failure modes trace back to terms that were legal to write into the LPA but never got scrutinized before signing.

Misalignment shows up when fees flow to the GP regardless of performance: an acquisition fee, a financing fee, a management fee on committed rather than invested capital. The promote is the only piece tied to actually hitting a return. Since none of these fees are capped by law, an LP has to read the schedule, not assume it mirrors the last deal they were in.

Dilution and capital call traps show up in the clause governing what happens when the GP calls for more capital mid-project, often to cover a cost overrun or a financing shortfall. LPs who can't or don't fund a call are frequently diluted under a formula written into the LPA; that formula is worth reading before signing, not after a call notice arrives.

A narrower but sharper red flag: a GP who offers to "arrange your mortgage" as part of the raise. In Ontario, arranging, negotiating or dealing in a mortgage for compensation requires a licence from the Financial Services Regulatory Authority of Ontario (FSRA) under the Mortgage Brokerages, Lenders and Administrators Act, 2006. Structuring a capital raise doesn't satisfy that requirement, and a GP who conflates the two is operating outside their registration.

How TESA Structures Its Own GP/LP Deals

TESA runs the GP/LP structure the way it runs the rest of a project: as one group carrying the deal end to end, not four vendors handing off a file. TESA Real Estate underwrites the site and the numbers. TESA Development takes it through design and permitting. TESA SKLTN delivers the turn-key superstructure. TESA Capital structures the capital stack and coordinates with licensed lenders on the debt side.

That last point matters given the licensing rule above: TESA Capital is not FSRA-licensed and does not itself arrange, broker or provide mortgages. It structures the equity side of the deal and coordinates with licensed mortgage professionals and lenders for financing, keeping the two functions separated the way the law requires.

On a Toronto multiplex raise, that debt-side coordination often runs through CMHC's MLI Select program, which scores a deal on affordability, energy efficiency and accessibility and sets financing maximums by points threshold:

Points	Max LTV (existing property)	Max LTC (new construction)	Max amortization	Other terms
50+	85%	95%	40 years	1.10 min DCR for standard rental housing
70+	85%	95%	45 years	1.10 min DCR for standard rental housing
100+	95%	95%	50 years	Limited-recourse option; 1.10 min DCR for standard rental housing

The program requires a minimum of five units (50 units or beds for retirement homes), which is one reason a fourplex under Toronto's 2023 as-of-right multiplex zoning sits right at the edge of what MLI Select was built for. Some property types and non-residential space carry higher DCR minimums than the standard rental figure above, so we confirm the applicable tier and ratio with the lender on each file rather than assuming the base case. We size the GP/LP raise against that debt capacity from the start: how many units the lot supports as-of-right, what tier of MLI Select financing the project can realistically score, and what equity gap is left for LPs to fill. That's the structuring work, priced and filed before a single unit goes to investors, not promised after the fact.