Telephone: (613) 954-8585
Fax: (613) 990-1233
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File: 11660-1(jw)
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GST Interpretation
Prescribed Joint Venture
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Dear XXXXX
The following is in response to your letter received here on February 20, 1992, wherein you request confirmation on the prescribed status of a joint venture arrangement. I regret the delay in responding.
This interpretation is based upon our current understanding of the Excise Tax Act (the Act) and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore not binding upon the Department in respect of any particular fact situation.
We offer the following statement of the facts as we understand them.
Statement of Facts:
1. On XXXXX and XXXXX entered into a joint venture (the "First Joint Venture") for the development, construction, operation and maintenance of a XXXXX plant and related facilities (the "plant") to be constructed in XXXXX
2. XXXXX and XXXXX are both GST registered residents.
3. XXXXX held title to the First Joint Venture's assets as bare trustee and agent for the First Joint Venture's participants.
4. As confirmed in a telephone conversation on XXXXX , XXXXX was designated as the operator of the First Joint Venture.
5. XXXXX is a GST registered resident.
6. XXXXX and XXXXX had an equal undivided interest in the First Joint Venture.
7. On XXXXX XXXXX acquired from XXXXX and XXXXX a one third interest in the First Joint Venture.
8. At this time the First Joint Venture was "terminated" and another joint venture (the "Second Joint Venture") was established with regard to the construction and subsequent operation of the Plant.
9. On XXXXX , a joint venture election form was completed and filed by the participants of the second joint venture.
10. The completed joint venture election form identifies XXXXX as the operator of the joint venture and XXXXX . and XXXXX as the joint venture participants.
11. The activity of the Second Joint Venture as identified in the joint venture election form is the "construction of a XXXXX has no assets and holds bare legal title to the Plant for and on behalf of the Second Joint Venture participants.
13. On XXXXX , XXXXX sold its entire interest in the Second Joint Venture to XXXXX and XXXXX and as a result XXXXX and XXXXX each own XXXXX of the shares of XXXXX and a XXXXX undivided interest in the Second Joint Venture's assets.
14. Construction of the plant was substantially completed in XXXXX and the plant commenced operations during that month.
15. The plant is currently operating as an XXXXX producing facility.
Interpretation Requested:
You have requested confirmation that the election will continue to be effective after the Second Joint Venture participants begin to operate the plant as an XXXXX producing facility.
Interpretation Given:
Pursuant to subparagraph 3(1)(a) of the Regulations Prescribing Joint Venture Activities, the following activity is a prescribed activity for purposes of the joint venture election provided for under subsection 273(1) of the Act:
"(a) the construction of real property, including feasibility studies, design work, development activities and the tendering of bids, where undertaken in the furtherance of a joint venture for the construction of real property."
As the XXXXX producing facility is real property, the election is in effect to the extent that the joint venture is engaged in the activity of constructing the facility.
It is the Department's view that the activity of operating the XXXXX producing facility is not a prescribed activity for purposes of the joint venture election. As a result, the deeming provisions of section 273 do not apply once the joint venturers have begun to operate the facility. Each of the joint venturers is required to collect and account for GST accordingly.
In XXXXX of your letter you submit that XXXXX has communicated with the Department and received confirmation that the election available pursuant to subsection 273(1) of the Act would continue to be effective after the construction of the plant is completed and its operation has begun. Included with your submission are copies of letters from XXXXX dated XXXXX , and Revenue Canada's reply XXXXX dated XXXXX .
The XXXXX letter clearly asks whether the joint venture election can be made with respect to "... the construction of real property". The XXXXX District Office responds to this request by ruling that the joint venture between XXXXX and XXXXX will be able to make a joint venture election. This ruling is in reference to the construction of real property for which XXXXX and XXXXX have entered into a joint venture.
Also included with your submission is a copy of a letter from the XXXXX District Office dated XXXXX , to XXXXX is asked to "... advise all Participants that the election by yourself as the Operator in this Joint Venture has been approved". This approval appears to have been given in response to an election form in which it is stated that the activity of the joint venture is the XXXXX
From the information you have provided, it does not appear that any rulings or written interpretations have been given on the question of whether the activity of operating the XXXXX plant is a prescribed activity for which an election is available pursuant to subsection 273(1) of the Act. Neither the XXXXX letter nor the election form filed by XXXXX make reference to any activity of the joint venture other than the construction of real property, and on this activity correct responses from the XXXXX have been given.
I trust the above has been of assistance. If you have any further questions, I would invite you to contact your local Excise office.
Sincerely,
H.L. Jones
Director
General Tax Policy
Policy and Legislation
Goods and Services Tax
c.c.: Carole Kellough
I&S Manager
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GTP: 2835
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