Medallion – Tax Court of Canada finds that a property management agreement with a rental property’s sole owner qualified as a joint venture for GST/HST purposes

A corporation (MC) acted as a property manager for the rental properties of 10 corporations (the “Owners”) with which it did not deal at arm’s length in consideration for a percentage of the rents (which apparently included exempt residential rents) and other gross revenues that it collected. In addition to some of the more usual features of a property management agreement (which in this case were labelled “Joint Venture Agreements”), most significant decisions respecting their “joint venture” was required to be approved unanimously by a management committee consisting of a representative of each of MC and the Owner. MC took the view that its share of the gross revenues was not consideration for a taxable supply made by it to the Owners (so that effectively GST, on a mangement fee, that would not have been eligible for an input tax credit was being avoided). The Crown took the view that there was no joint venture on the four grounds (taken from its Westcan listing of JV criteria) noted below (with Russell J’s finding noted after each):

MC did not have a joint property interest in the subject matter of the venture:

• Its right to a share of the revenues was a property interest in the venture.

MC had no right of mutual control or management of the enterprise:

• This was present in the joint management committee. Sales (as contrasted to leasing) were outside of the purview of the JV so that it did not matter that MC had no say on sales.

MC had no expectation of profit (or of “adventure”):

• It was entitled to a percentage of the rents and other gross income.

MC had no right to participate in the profits:

• Again, it was entitled to a percentage of the gross operating revenues, and the fact that it would not share in any gain on sale did not matter as “any sale of a Property simply was beyond the scope of the JVs as asserted in this case.”

Accordingly, the property management relationship qualified as a JV, and there was no requirement on MC to collect GST/HST on its share of the revenues.

Neal Armstrong. Summary of Medallion Corporation v. The Queen, 2018 TCC 157 under ETA s. 273(1).