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.
GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 234662
Dear [Client]:
Subject: GST/HST INTERPRETATION
Ability for a joint venture operator to credit GST/HST new housing rebates to purchasers of residential condominium units
Thank you for your letter of [mm/dd/yyyy], concerning the ability for a joint venture operator to credit goods and services tax/harmonized sales tax (GST/HST) new housing rebates to purchasers of residential condominium units.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following:
1. A group of [...] companies entered into a written and executed joint venture agreement (the JVA), for the development, construction and sale of residential condominium units (the Units) located in Ontario (hereafter collectively referred to as the Joint Venture).
2. The parties to the Joint Venture, and their allocated share of proportionate interest in the Joint Venture, are as follows:
a. Company X, with a proportionate share of [...]%,
b. Company Y, with a proportionate share of [...]%,
c. Company Z, with a proportionate share of [...]%, and
d. NomineeCo.
3. Company X and Company Y are affiliated companies, while Company Z is an unrelated entity.
4. NomineeCo along with Company X and Company Y, have entered into a bare trust/nominee agreement (the BTA), to create a bare trust/nominee relationship. NomineeCo, as nominee/trustee holds legal title to the lands on which the Units will be constructed (the Joint Venture Lands).
5. Company X holds a [...]% undivided beneficial interest in the Joint Venture Lands, and Company Y holds a [...]% undivided beneficial interest in the Joint Venture Lands.
6. Under section 118 of the Land Titles Act of Ontario, Company Z registers on the title to the Joint Venture Lands a restriction against transferring, charging or otherwise dealing with Joint Venture Lands, without Company Z’s prior consent. Company Z agrees to consent to sales of the Units in accordance with the JVA.
7. Under the JVA, Company X, Company Y and Company Z (the Participants), have each made their own respective contributions to the Joint Venture.
a. Company X and Company Y contribute the Joint Venture Lands. Company Z has contractual rights under the JVA to approve and participate in the development, construction, marketing and sales of the Units.
b. Company Z contributes its skill and expertise in developing, constructing and selling the Units, and contributes financially by capitalizing the Joint Venture through cash injections and financing loans.
8. Through their participating interests under the JVA, the Participants are entitled to receive, in accordance with their proportionate share, distributions of revenues, after payment of any prior obligations and recoupment of expenses.
9. You assert that the following facts are present in the JVA:
a. A contribution by each of the companies of money, property, effort, knowledge, skill or other asset to a common understanding.
b. A joint property interest in the subject matter of the joint venture.
c. A rate of mutual control or management of the enterprise under the joint venture.
d. Expectation of profit, or the presence of “adventure”, as it is sometimes called.
e. A right to participate in the profits of the joint venture.
f. Limitation of the objective to a single undertaking or ad hoc enterprise.
10. The Joint Venture’s bank account is in Company X’s name. From the Joint Venture’s bank account, Company X pays for the taxable supplies acquired on behalf of the Joint Venture. Additionally, all net sale proceeds and HST collected will be received into this bank account for the sales of the Units, and Participants will receive their distributions from this bank account.
11. Company X enters into agreements with registered suppliers to acquire taxable supplies of property and services made to the Joint Venture exclusively for consumption, use or supply in the course of the Joint Venture’s commercial activity. Company X acquires the taxable supplies for itself, and on behalf of, Company Y and Company Z.
12. You assert that Company X will engage persons under, or by way of, supplier agreements to construct the Units, and Company X will maintain its ownership interest in each of the Units throughout construction and until the ownership of each such unit is transferred to a buyer.
13. Company X, together with the NomineeCo, enter into agreements with individuals to make taxable supplies by way of sale of the Units.
14. Company X will register for the GST/HST.
INTERPRETATION REQUESTED
You would like to know whether, in consideration of the scenario provided:
1. Company X, as a participant in the Joint Venture, if registered for GST/HST purposes, may jointly elect with the other participants of the Joint Venture to act as operator pursuant to section 273.
2. Company X would qualify as a builder of the Units for GST/HST purposes. As such, Company X would be permitted to pay or credit GST/HST New Housing Rebate amounts to purchasers of the Units pursuant to subsections 254(4), 254(5), 256.21 (3), 256.21(4) and section 41(6) of the New Harmonized Value-Added Tax System Regulations, No. 2 (the Regulations).
INTERPRETATION GIVEN
Joint venture election
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 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 (ITCs) in relation to the expenses incurred by the operator on behalf of the other participants in respect of the joint venture activities.
Based on the facts set out above, Company X has an interest in the Joint Venture Lands and is entitled to a proportionate share of profits in the Joint Venture. Consequently, Company X is a participant in the Joint Venture.
Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to register for GST/HST purposes except where the person is a small supplier. Additionally, any person who is not required to be registered may apply to be voluntarily registered where the person is engaged in commercial activity in Canada. The definition of “commercial activity” in subsection 123(1) includes, in paragraph (c), “…the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply…”.
Accordingly, if Company X is engaged in the development of the Units on the Joint Venture Lands, it would generally be eligible to register for GST/HST purposes. As a participant in the Joint Venture, and if registered for GST/HST purposes, Company X may jointly elect with the other participants of the Joint Venture to act as operator pursuant to section 273.
If Company X is elected the operator of the Joint Venture, and Company X makes supplies on behalf of the other participants and on its own behalf, Company X would be obligated to report and account for the GST/HST on the Joint Venture’s supplies, and would be eligible to claim the Joint Venture’s ITCs on eligible expenses that Company X pays directly, on its GST/HST returns.
Where a joint venture election is made, subsection 273(1) provides, among other things, that all property that is supplied or acquired by the operator on behalf of another participant is deemed to be supplied or acquired by the operator rather than the other participants. In order for the deeming rule to apply, subsection 273(1) requires that the property be supplied or acquired during the period the election is in effect, that the property be supplied or acquired under the agreement by the operator on behalf of the other participants, and that the property be supplied or acquired in the course of the activities for which the agreement was entered into. In other words, where the operator makes a supply of real property and all of these conditions are met, the supply of real property is deemed to be made by the operator and not by the other participants.
The election does not affect the tax status of supplies made directly by another participant (not through the operator), nor does it affect the other participant’s liability for collecting and accounting for tax on those supplies. Therefore, when an election is made pursuant to section 273, the general rules will continue to apply when determining if another participant can register and claim ITCs in respect of expenses that were not paid through the operator. For more information, please see GST/HST Policy Statement P-138R, The Effect of Making a Joint Venture Election on a Participant's Eligibility to Register and Claim Input Tax Credits.
Where Company X, as operator, makes a supply of real property (the Units) on behalf of another participant and on its own behalf and if the supply is made
- during the period that the joint venture election is in effect,
- by Company X, as operator, under the JVA,
- in the course of the activities for which the Joint Venture was entered into,
then Company X will be deemed to have made the supply of the Units. As a result of the deeming rules in subsection 273(1), the other participants are not regarded as having made a supply of the Units, and consequently, the other participants would not be required to collect the tax on the sale of the Units.
Builder and crediting GST/HST new housing rebates
It is a question of fact whether an operator who makes a joint venture election under section 273 in respect of a joint venture that was created to construct residential complex is a builder for GST/HST purposes, and if so, would be permitted to pay or credit GST/HST Housing Rebate amounts to any eligible purchasers. Each of the relevant provisions of the ETA has different conditions that have to be met, and whether these conditions have been met in a given situation has to be determined on a case-by-case basis.
Paragraph (a) of the definition of a builder under subsection 123(1) includes, in part, a person who, at a time when the person has an interest in the real property on which the complex is situated, carries on, or engages another person to carry on for the person, the construction of the complex. A builder also includes, in part, under paragraph (b) a person who acquires an interest in a residential complex at a time when the complex is under construction. But does not include under paragraph (h), in part, a person described in any of paragraphs (a) or (b) whose only interest in the complex is a right to purchase the complex or an interest in it from a builder of the complex.
Please note, where more than one person holds an interest in real property on which a complex is being newly constructed, it is possible for more than one person to meet the definition of "builder" for GST/HST purposes. For example, another participant may have an interest in the real property and also meet the definition of "builder".
In the case of the Joint Venture, if:
- the BTA between NomineeCo, Company X and Company Y is indeed a true bare trust arrangement;
- Company X has a beneficial ownership interest in the Joint Venture Lands;
- Company X is elected operator of the Joint Venture; and
- Company X will engage persons under, or by way of, supplier agreements to construct the Units;
then Company X would meet the definition of "builder" as Company X would be considered to be carrying on, or engaging another person to carry on for Company X, the construction of the Units while it has an interest in the Joint Venture Lands.
The GST/HST New Housing Rebate and/or Ontario New Housing Rebate for houses purchased from a builder (the New Housing Rebates) provided in subsection 254(2), and/or subsection 256.21(1) and subsection 41(2) of the Regulations, is available to individual purchasers of newly constructed residential condominium units for use as their, or their relation’s, primary place of residence, provided all the other conditions for claiming the rebate are met. Where there are two or more individual purchasers, the New Housing Rebates are available as long as any of the individuals, or a relation of any of the individuals, acquires the newly constructed residential condominium unit for use as a primary place of residence, provided all the other conditions for claiming the rebate are met. For information on the other conditions for claiming the New Housing Rebates, please refer to GST/HST Guide RC4028, GST/HST New Housing Rebate.
Generally, subsection 254(4) provides that the builder of a residential condominium unit may pay or credit the amount of the federal portion of the New Housing Rebates to or in favour of the individual who purchases the complex or unit. The federal portion of the New Housing Rebates may be paid or credited by the builder only where the conditions in paragraphs 254(4)(a) to (e), as reproduced below, are met:
a) the builder has made a taxable supply of the complex or unit by way of sale to an individual and has transferred ownership of the complex or unit to the individual under the agreement for the supply,
b) tax has been paid, or is payable by the individual in respect of the supply,
c) the individual submits the rebate application to the builder within two years after the day ownership of the complex or unit is transferred to the individual under the agreement for the supply,
d) the builder agrees to pay or credit to or in favour of the individual any rebate that is payable to the individual in respect of the complex, and
e) the tax payable in respect of the supply has not been paid at the time the individual submits an application to the builder for the rebate and, if the individual had paid the tax and made application for the rebate, the individual would have been entitled to the rebate.
With respect to housing situated in Ontario, subsection 256.21(3) and subsection 41(6) of the Regulations provide that the builder of a residential condominium unit may pay or credit the amount of the Ontario portion of the New Housing Rebates to or in favour of the individual who purchases the unit. The Ontario portion of the New Housing Rebates may be paid or credited by the builder only where the conditions in paragraph 41(6)(c) of the Regulations are met. Generally, that paragraph includes five conditions that correspond to the five conditions set out in subsection 254(4).
Therefore, provided that the purchasers of the Units meet all the eligibility criteria for the New Housing Rebates, and provided that all of the other conditions set out in subsection 254(4) and subsection 41(6) of the Regulations are met, Company X may pay or credit the New Housing Rebates to purchaser’s of the Units.
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 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 letter, please call me directly at 902-943-5730. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Renée Dove
Real Property 2 Unit
Financial Institutions and Real Property Division
GST/HST Rulings Directorate
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