Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 156861
January 28, 2014
Dear [Client]:
Subject: GST/HST INTERPRETATION –
Joint Venture Election under Section 273 of the Excise Tax Act and Quebec Sales Tax Harmonization
Thank you for your letter of [mm/dd/yyyy], concerning the joint venture election under section 273 of the Excise Tax Act (ETA), and Quebec Sales Tax (QST) harmonization.
[…].
The CRA is responsible for administering the legislation as passed by Parliament. Changes to the legislation are a tax policy matter, which is the responsibility of the Department of Finance Canada. […].
Bare Trusts, Nominee Corporations and Joint Ventures
[…]
We have reviewed your submission and taken into account your analysis and recommendations contained therein. However, due to the nature of bare trusts and nominee corporations we regret to inform you that we will not be amending the current policy. Our position in respect of the joint venture election is outlined below.
For GST/HST purposes, a joint venture is not a “person”. Therefore, a joint venture cannot register and account for the GST/HST in its own right. However, section 273 of the ETA provides for an election under which participants in certain joint ventures can elect for one participant that is a GST/HST registrant to be the “operator”. Where a valid election is made, the operator accounts for the GST/HST collectible on taxable supplies made by the operator on behalf of the other participants. The operator also claims any input tax credits in relation to the expenses incurred by the operator on behalf of the other participants in respect of the joint venture activities.
GST/HST Policy Statement P-106, Administrative Definition of a “Participant” in a Joint Venture, states the CRA’s administrative definition of “participant” for purposes of section 273 of the ETA. In order to be an operator of a joint venture for purposes of the election, a registrant must first be considered a participant in the joint venture. As stated in the policy statement a “participant” means:
(a) a person who, under a joint venture agreement evidenced in writing, makes an investment by contributing resources and takes a proportionate share of any revenue or incurs a proportionate share of the losses from the joint venture activities; or
(b) a person, without a financial interest, who is designated as the operator of the joint venture under an agreement in writing and is responsible for the managerial or operational control of the joint venture.
For a person to be considered to have managerial or operational control of a joint venture the person must have the authority to manage the joint venture’s daily activities without requiring the input or approval of the other participants. Evidence of a person having the necessary managerial or operational control may include having the authority to engage personnel or contractors on behalf of the joint venture. Where the person does not engage staff to perform any of the operator’s duties, it is doubtful the person would be considered to have the managerial or operational control of the joint venture. Additionally, the person would not be considered to have the managerial or operational control of a joint venture merely as a result of completing the GST/HST returns in respect of the joint venture’s activities.
However, managerial or operational control does not necessarily require authority to initiate significant business decisions such as the acquisition of, or selling of, certain core business assets. It can be limited to the daily functions necessary to run a business but must include all or at least most of the significant duties necessary to run the joint venture. If a person has no independent powers, discretion or responsibilities and its primary responsibility is to hold title to the property for the benefit of the other participants and carry out limited functions solely at the direction of the participants, the person would not be considered to have the managerial or operational control of the joint venture and thus would not be considered to be a participant in the joint venture.
For purposes of the section 273 joint venture election, a “bare trust” which is a bare trust at law cannot be considered the operator of a joint venture. A bare trust at law merely retains legal title to assets with the beneficial owner(s) retaining beneficial ownership and authority for any other actions in relation to the assets. A nominee corporation may be the trustee of a bare trust. Further information on the nature of bare trusts and the GST/HST is outlined in GST/HST Technical Information Bulletin B-068, Bare Trusts.
Generally, a nominee corporation provides the use of its name to the beneficial owners of the assets. Nominee corporations are also generally characterized as shells which do not perform activities other than holding assets on behalf of beneficial owners. All other functions performed by the nominee corporation are at the direction and control of the beneficial owners.
Where the only function of a nominee corporation is to hold title to a joint venture’s assets and have its name used instead of the names of the participants in the joint venture’s dealings with third parties, the nominee corporation does not qualify as a participant for purposes of the joint venture election.
The terms “nominee corporation” and “bare trust” may be used somewhat loosely by businesses. As a result, a so--called nominee corporation or so-called bare trust may in fact have the managerial or operational control of a joint venture. Where this is the case, the so-called nominee corporation or bare trust may be a participant in the joint venture for GST/HST purposes. Whether a person has the managerial or operational control of a joint venture is a question of fact which is determined through a full examination of the duties performed and the relevant agreements.
Temporary Administrative Tolerance
In some cases, participants in joint ventures have made an election under section 273 of the ETA for a nominee corporation or bare trust to be the operator of the joint venture where the nominee corporation or bare trust does not have the managerial or operational control and is not considered to be a participant in accordance with the policy statement. […], auditors have recently been advised not to assess for any GST/HST owing where an assessment could be raised because the bare trust or nominee corporation is not a participant for purposes of section 273. This administrative tolerance is contingent upon confirmation that all returns have been filed, all amounts have been remitted and the joint venture participants are otherwise fully compliant. Further, this administrative tolerance is in place with the understanding that, on a going forward basis the joint venture will arrange its affairs to ensure that a participant, as defined in GST/HST Policy Statement P-106, who is a GST/HST registrant, is the operator of the joint venture.
This administrative tolerance will be addressed in a GST/HST Notice to be posted on the CRA website in the coming weeks. The notice will also provide a sunset date for this administrative tolerance.
Agency
A trustee of a bare trust, for example, a nominee corporation, may act as an agent of the participants in a joint venture by performing certain activities on their behalf. Where an agency relationship exists between the nominee corporation and the participants in a joint venture, the nominee corporation may be engaged in a commercial activity and as such may be required or permitted to register for GST/HST purposes.
Generally, an agent is considered to be an extension of the principal and makes or acquires supplies on behalf of the principal who for GST/HST purposes is considered to have made or acquired the supplies. Therefore, it is the principal that is generally required to charge and account for the tax on the supplies made by the agent on behalf of the principal. In addition, it is the principal who is entitled to claim any input tax credits on the supplies acquired by the agent on behalf of the principal.
Under subsection 177(1.1) of the ETA, a principal and an agent can jointly elect to allow the agent to account for the tax on supplies made by the agent on behalf of the principal. Where a nominee corporation is a GST/HST registrant that makes taxable supplies as agent on behalf of the participants in a joint venture, the nominee corporation and the participants may jointly elect under subsection 177(1.1) to have the nominee corporation account for the tax on the supplies it makes on behalf of the participants.
However, the election under subsection 177(1.1) of the ETA does not result in the agent assuming any rights with respect to input tax credits to which the principal may be entitled to claim. Consequently, even where a nominee corporation acts as agent in acquiring supplies on behalf of the participants in a joint venture, the nominee corporation is not entitled to claim any input tax credits that the participants may be eligible to claim with respect to such supplies.
A nominee corporation is an agent with respect to a particular transaction if the nominee corporation is an agent based on a determination of fact and an application of the principles of law. It is also a question of fact whether a nominee corporation is required to register for GST/HST purposes or whether it may register voluntarily. If the nominee corporation is an agent and makes taxable supplies of its services of acting as an agent to the participants in a joint venture, the nominee corporation may register voluntarily if it is not required to register.
QST Harmonization
[…], under the Comprehensive Integrated Tax Coordination Agreement entered into by the governments of Canada and Quebec, since January 1, 2013 the CRA administers the amended QST, on behalf of Revenu Québec, for selected listed financial institutions (SLFIs) and financial institutions that would be SLFIs if Quebec were a participating province.
You have indicated that you are concerned that there are still situations where the GST and QST treatment of a transaction will differ even though the QST legislation was amended effective January 1, 2013, to be consistent with the GST/HST legislation. In your letter you indicated that such a difference arises where a provider of financial services transfers a client list that is intangible personal property that was originally acquired or developed in whole or in part prior to 2013 for use prior to 2013 where an election under section 167 of the ETA and section 75 of An Act Respecting the Québec Sales Tax (ARQST) cannot be made.
As you are aware, effective January 1, 2013, financial services that are now generally exempt under section 169.3 or 169.4 of the ARQST were previously zero-rated under section 198 of the ARQST.
In the situation where a registrant such as a listed financial institution that only makes supplies of financial services transfers a client list that is not capital property and would have been acquired or produced in whole or in part prior to 2013, there would be a different treatment for GST/HST and QST purposes. Specifically, for GST/HST purposes, the client list would have been acquired or produced exclusively in the course of activities of the registrant that are not commercial activities (i.e., making exempt supplies of financial services) and would have been used exclusively in the course of those activities. Therefore, under paragraph 141.1(1)(b) of the ETA, the supply of the client list would be deemed to have been made otherwise than in the course of commercial activities and would not be taxable. For QST purposes, the client list would have been acquired or produced in the course of activities of the registrant that are commercial activities (i.e., making zero-rated supplies of financial services) for use in the course of those activities. Therefore, under section 42.1 of the ARQST, the supply of the client list would be deemed to have been made in the course of commercial activities and would be taxable. However, the registrant would have been eligible to claim input tax refunds related to the acquisition or production of the client list. Section 42.2 of the ARQST would not apply in this situation.
The proposed amendment discussed in the Revenu Québec announcement on July 25, 2013, provides that a taxable supply of movable property is not included in the calculation of the small supplier threshold where the following conditions are met:
• the property is not capital property;
• the seller of the property is a financial service provider;
• the seller owned the property before January 1, 2013; and
• the GST does not apply to the sale of the property.
Please note that on November 18, 2013, a news release by Revenu Québec provided further information related to the July 25, 2013 announcement.
Whether or not further changes should be made to the ARQST relates to tax policy with respect to the ARQST. This falls within the responsibility of the ministère des Finances et de l'Économie du Québec. Any such questions should be directed to the ministère.
If you have questions related to the amended QST that are not related to SLFIs or financial institutions that would be SLFIs if Quebec were a participating province, please call Revenu Québec at 1-800-567-4692 or write to the Direction principale des relations avec la clientèle des entreprises, Revenu Québec, 3800 Marly Québec (Québec) G1X 4A5.
If you require clarification with respect to the joint venture issue discussed in this letter, please call Mr. Marcel Boivin, Director, General Operations and Border Issues Division at […]. If you require clarification with respect to the information provided related to the QST harmonization issue discussed in this letter, please call Mr. Ivan Bastasic, Director, Financial Institutions and Real Property Division at […].
Yours truly,
[…]
Excise and GST/HST Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
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