25 McArthur Road
Place Vanier, 10th Floor, Tower C
Vanier, ON
XXXXX K1A 0L5
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Subject:
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GST/HST INTERPRETATION
XXXXX
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Thank you for your letter of April 24, 1997, with attachments, concerning the application of the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) to the provision of laundry services.
Interpretation Requested
In your letter you enclosed a draft of a proposed joint venture agreement to be entered into between XXXXX , a provider of laundry service equipment, and various landowners, concerning the provision of laundry services to tenants of residential buildings.
You wished to receive a ruling from us indicating that both XXXXX and the landowner would be deemed to be engaged in the provision of laundry services pursuant to this joint venture agreement.
As discussed in our conversation on XXXXX 19 xx , we are unable to provide you with a ruling such as you have requested. The existence of a joint venture is a question of fact, and such a determination is beyond the scope of this office. In the course of our conversation you stated that it won't be necessary to determine whether a joint venture exists or not but that you would like a ruling determining whether or not this agreement is in regards to a single supply of laundry services or in regards to a supply of real property and a supply of laundry equipment.
Statement of Facts
Pursuant to the documents entitled Laundry Service Joint Venture Agreement provided by you:
• The landowner is the registered owner, or authorized agent of the registered owner, of the land and premises in question.
• The landowner wishes to provide self-serve laundry services normally associated with the residential apartment dwelling to the residents of the building.
XXXXX operates an automatic laundry equipment business.
XXXXX and the landowner wish to enter into an agreement for the purposes of jointly providing laundry services to the residents of the building and will, for the purposes of this agreement, combine their respective property for the provision of the laundry services, without any transfer of interest in either of their respective property. The parties will not be considered to be partners but rather independent contractors operating jointly under an agreement.
• The landowner agrees that it shall not permit the installation of any equipment associated with the provision of laundry services in , on or at the building, by any party other than XXXXX
• The landowner will:
• supply at its own cost and expense: all utilities required in the operation of the laundry services including all water, gas, electricity, drainage, sewer outlets, ventilation systems, and janitor service to the premises;
• arrange for and pay the cost of all licenses, permits, provincial sales tax or other taxes which may arise as a result of providing the laundry services to the residents of the building;
• be responsible for the security of the building, premises and automatic laundry equipment used;
• keep the equipment and premises clean;
• carry insurance on the building and premises; and
• not interfere with XXXXX access to the premises in order to carry out its obligations under this agreement.
XXXXX will:
• connect at its own cost and expense the equipment to the electric, gas, water, and sewer connections in the premises and do all work needed for the installations of the equipment;
• carry insurance on the equipment; and,
• repair or replace the equipment when required.
• Title to the equipment shall at all times remain with XXXXX regardless of the nature of installation.
XXXXX has no interest in the premises and/or the building which shall at all times be the sole property of the landowner.
XXXXX shall be responsible for establishing what equipment will be used and will set the charges for the provision of the laundry services.
XXXXX shall be responsible for emptying the equipment of any revenues collected from the provisions of the laundry services and shall allocate the funds to the parties according to a specified percentage.
XXXXX and the landowner shall not in any way become a partner of the other in the conduct of its business under this joint agreement, or otherwise, nor is the relationship of principal and agent created. Each party shall function and perform its portion of services as a independent contractor and, as such, shall be solely liable with respect to claims arising from its activities or scope of work.
Interpretation Given
It is the Department`s position that for GST/HST purposes, the relationship between XXXXX and the landowner is composed of two completely separate transactions. The supply of the right to use the laundry machine services will be considered to be made by XXXXX The supply of the right to use the landowner's premises will be considered to be made by the landowner to XXXXX
Explanation
As stated earlier, the existence of a joint venture is a question of fact, and beyond the scope of this office. Whether or not a joint venture exists depends on the facts and circumstances of each particular case. No definitive rules have been promulgated which will apply generally to all situations. However, as a general rule, various factors must be present before a court will conclude that a particular arrangement constitutes a joint venture. These factors are as follows:
• a contribution by the parties of money, property, effort, knowledge, skill or other asset to a common undertaking;
• a joint property interest in the subject matter of the venture;
• a right of mutual control or management of the enterprise;
• expectation of profit, or the presence of "adventure", as it is sometimes called;
• a right to participate in the profits; and
• most usually, limitation of the objective to a single undertaking or ad hoc enterprise.
While we are unable to rule on the existence of a joint venture, in consideration of the factors noted above, it would appear, in our view, that certain points are not satisfied. For example, the "right of mutual control or management of the enterprise" requirement is not satisfied as XXXXX is responsible for setting the charges for the provision of the laundry services and XXXXX is responsible for collecting the revenue from the equipment and allocating the specified percentage of funds to the parties involved.
As stated above, it is the Department's view that the arrangement presented does in fact consist of two separate supplies. One supply occurs between the landowner and XXXXX and the other supply occurs between XXXXX and the tenant. The landowner's supply of the right to use the premises to XXXXX is exempted pursuant to section 13.4 of Part I of Schedule V to the Excise Tax Act (the Act), while XXXXX supply of the right to use the laundry machines to the tenant is exempted pursuant to section 13.3 of that same Part.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed or future amendments to the legislation may result in changes to our interpretation. These comments are not rulings and, in accordance with the guidelines set out in GST Memoranda Series (1.4), do not bind the Department with respect to a particular situation.
Should you require any further information concerning this matter, please contact me at (613) 952-9214.
Yours truly,
Doris Rist
A/Rulings Officer
Financial Institutions and Real Property
GST/HST Rulings and Interpretations
Legal References: ETA
Reference: ETA ss. 165(1), P-077, RC6040002(1), 11755-4, 02/317935
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Originator's Desk Copy
NCS Subject Code(s) - I 11950-1
XXXXX
District Chief, Audit
H.Q. Quality Assurance |
XXXXX
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