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XXXXX File 11660-1, 11660-9
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Subject:
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GST INTERPRETATION
Joint Ownership
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Dear XXXXX
Thank you for the copy of the letter, with attachments, which you sent to your client, XXXXX, concerning the occupation of space in a building by joint venture participants. We apologize for the delay in responding to your enquiry.
We understand the facts in your situation to be as follows:
Statement of Facts:
1. XXXXX received an Interpretation Letter from the XXXXX, dated July 31, 1992.
2. The letter from the District Office related to the following statement of facts:
(a) Three registered corporations, engaged in commercial activities (as defined in the Act), share ownership of a single commercial rental property that is not a residential complex.
(b) The legal title to the property is jointly held by the three companies.
(c) The companies have formed a joint venture to operate and lease space in the building, but have not made an election pursuant to section 273 of the Excise Tax Act.
(d) Three of the 4 offices in the building are occupied by the participants and the fourth office is occupied by an unrelated, arm's length company.
Interpretation Requested:
1. You have requested that we review the Interpretation Letter prepared by the XXXXX.
Interpretation Given:
We confirm that, based on the facts presented, the Interpretation Letter you received from the XXXXX is correct.
Where a participant in a joint venture, who owns an undivided interest in the joint venture property, occupies space in the building the ownership interest of the space being occupied by the participant is equal to the participant's ownership interest in the building. Therefore, where participants A and B in a joint venture each have an ownership interest of 37.5% in the building and participant C in the same joint venture has an ownership interest of 25% in the building, regardless of the amount of space occupied, none of the participants are considered to have an ownership interest in any space they occupy beyond or below their ownership interest in the building.
Therefore, for any space that A occupies in this building 37.5% of that space represents A's ownership interest and the remaining 62.5% represents B and C's ownership interests. Therefore, A would be receiving a supply of 37.5% of the space if occupies from B and 25% of the space it occupies from C; B would be receiving a supply of 37.5% of the space if occupies from A and 25% of the space it occupies from C and C would be receiving a supply of 37.5% of the space it occupies from A and from B.
This result occurs whether or not there is a substantial gain by each of the participants. There is no requirement in the legislation that a person make a profit (gain) before a taxable supply can exist.
The result will, however, change if each participant holds the title to the area they occupy. This change in treatment will occur because the legal interest the participants have and the legal relationship between them is different in the two situations. The treatment in both situations is, however, consistent with the laws concerning real property.
Sincerely,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
c.c.: P. Banham
W. Houston
GTP: XXXXX
XXXXX
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