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.
Date: July 17, 2014
To:
[Addressee]
FROM:
Ben Boboski
Senior Rulings Officer
Goods Unit, General Operations and Border Issues Division,
Excise and GST/HST Rulings Directorate,
Legislative Policy & Regulatory Affairs Branch
Case Number: 152176
Subject: GST/HST INTERPRETATION
[micro-FIT Agreements -] [Whether] Joint Ventures and [Eligibility for] Input Tax Credits
This memorandum is in response to your correspondence of [mm/dd/yyyy], regarding […] a possible joint venture and eligibility for input tax credits (ITCs).
FACTS
1. […] (the Landowner) and […] (the Investor) have entered into a written agreement called […] (the Agreement). The Agreement is dated [mm/dd/yyyy].
2. The Landowner and Investor made the election under section 273 of the Excise Tax Act using the GST21 - Election or revocation of an election to have the joint venture operator account for GST/HST form, to have the Investor account for the GST/HST. The election was signed on [mm/dd/yyyy], with an effective date of the election as indicated on the form of [mm/dd/yyyy].
3. Pursuant to paragraph […] of the Agreement, the Landowner made its real property available for the installation of solar panels and related equipment.
4. Per section […] of the Agreement, the Investor was responsible for the installation of the solar panels.
5. Pursuant to section […] of the Agreement, the purpose of the joint venture is to generate electricity using solar panels and to supply it to the Ontario Power Authority (OPA) under the Ontario provincial micro-FIT program.
6. Under the micro-FIT program an eligible participant is one that is included on the micro-FIT Eligible Participant Schedule. Pursuant to that schedule, only the Landowner and not the Investor would be an eligible participant.
7. Under the micro-FIT program the supplier of electricity must be the same person or entity as the person or entity who signs the connection agreement for the micro-FIT project.
8. The Agreement confines the venture to the micro-FIT program and will terminate with the expiration of the micro-FIT contract.
9. Per section […] of the Agreement, neither party shall have any authority to act for the other or to incur any obligation on behalf of the other.
10. Pursuant to paragraph […] of the Agreement, the Landowner shall be paid the first $[…][X] of revenue earned from the solar project in each year and pursuant to paragraph […] of the Agreement, the Investor shall be paid all remaining revenue.
11. Pursuant to section […] of the Agreement, the parties shall open a bank account and the signing officers of the account shall be determined by the Investor.
12. Pursuant to section […] of the Agreement, the Landowner confirms that all deposits to and all balances in the account are held in trust for the Investor.
13. Section […] of the Agreement states that the Landowner shall not have any authority, right or entitlement to draw any cheque or drafts or other orders for payment of money against the account, or to otherwise make or direct any transfers, withdrawals or other disbursements there from.
14. Per section […] of the Agreement, the Investor retains ownership of the solar panels and may sell, transfer, remove or abandon them.
15. The Landowner retains ownership of the real property on which the solar panels are situated.
16. The Investor registered for the GST/HST in [mm] of [yyyy], and reported revenue from the joint venture of $[…] for […][that year].
ISSUE
You would like a response to the following questions:
1. Does the arrangement between the parties constitute a joint venture for GST/HST purposes and, therefore, can the Investor as operator claim ITCs on behalf of the joint venture?
2. Is the activity undertaken a prescribed activity for purposes of the Joint Venture (GST/HST) Regulations (the Regulations)?
3. Is the Investor entitled to ITCs in respect of the GST/HST paid on the acquisition of inputs for the generation of solar electricity?
ANALYSIS
1. Does the arrangement between the parties constitute a joint venture for GST/HST purposes and, therefore, can the Investor as operator claim ITCs on behalf of the joint venture?
The Landowner is merely providing access to the land for the construction of the solar project and does not possess any right of mutual control and management of the activity. The Agreement provides that the Landowner has no obligations with respect to the operation of the solar project. The Landowner is not involved in the construction or operation of the solar project and is unable to exercise any degree of control or management of the project.
One of the characteristics of a joint venture is that the participants have a right of mutual control. There is usually no delegation of ultimate authority and abandonment of final control over the joint venture operations by one participant to another. Essential strategic and major decisions such as disposition of assets and large expenditures normally require consent of all the participants. The Agreement between the Investor and the Landowner fails to contain the necessary essential element of “mutual control and management” for the purposes of a joint venture. Therefore, for GST/HST purposes, there is no joint venture between the Landowner and the Investor with respect to the construction and operation of the solar project. Consequently, an election under section 273 is not available to the Investor and the Landowner.
2. Is the activity undertaken a prescribed activity for purposes of the Regulations?
Paragraph 3(1)(e) of the Regulations lists as a prescribed activity “the operation of a facility that is used to generate electricity”. The purpose of the parties to the Agreement is to construct a facility, generate electricity, and supply it to OPA via the micro-FIT program. Therefore, the activity is prescribed under the Regulations.
3. Is the Investor entitled to ITCs in respect of the GST/HST paid on the acquisition of inputs for the generation of solar electricity?
Under the micro-FIT program all sales of electricity by a registrant operator to OPA are taxable supplies made in the course of a commercial activity. The registrant operator is required to account for the HST on these supplies. Under the micro-FIT agreement between the Landowner and OPA, the Landowner is the supplier of the electricity to OPA. Where the Landowner is a GST/HST registrant, the Landowner is required to account for the HST collectible on these supplies.
Under the Agreement, the Investor is responsible for the construction of the solar project and the management and operation of the solar panel system. It is our view that, pursuant to the Agreement, the Investor is making a taxable supply of the construction, management and operation of the solar panel system. Under the Agreement, the consideration payable by the Landowner for this supply is equal to the annual revenues earned from the supplies of electricity that are in excess of $[X]. As a GST/HST registrant, the Investor is required to account for the GST/HST collectible in respect of this supply.
Memorandum 8.1, General Eligibility Rules, provides information regarding the five criteria that must be satisfied in order for an ITC to be claimed pursuant to section 169.
* the property or service must be acquired, imported or brought into a participating province by a person for consumption, use or supply in the course of the person’s commercial activities;
* the person must be a registrant during the reporting period in which the GST/HST on the property or service becomes payable by the person or is paid without having become payable;
* the person must have obtained sufficient documentary evidence to substantiate the ITC prior to making the claim in a GST/HST return;
* tax must be payable by the person in respect of the supply, importation or bringing in, or be properly paid by the person prior to its becoming payable; and
* the ITC must be claimed in a return filed within the time limit for claiming the ITC.
Since the Investor is making a taxable supply of the construction, management and operation of the solar panel system, the Investor is eligible to claim full ITCs for costs related to the purchase, installation and operation of the solar panel system subject to the conditions under section 169.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.]
If you require clarification with respect to any of the issues discussed in this memo, please call me directly at 613-952-9585.
Ben Boboski
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate
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