4 October 2002 GST/HST Interpretation 38983 - Application of Joint Venture Rules

Dear XXXXX:

Thank you for your letter of XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the lease of real property by a joint venture operator to a financial institution that is a participant in the joint venture.

XXXXX (a financial institution) and a co-venturer are participants in a joint venture (under an agreement in writing) for the lease of real property. Each participant in the joint venture owns XXXXX of the real property. XXXXX and the co-venturer have made an election under subsection 273(1) of the Excise Tax Act (ETA) which enables the co-venturer (i.e., the joint venture operator) to account for tax in respect of the joint venture activities.

In addition to being a participant in the joint venture, XXXXX is a tenant in the building and has entered into a lease agreement with the joint venture operator for XXXXX of the space it occupies. XXXXX pays the GST calculated on consideration that is attributable to XXXXX of the space it occupies.

Interpretation Requested

You have asked that we confirm that the GST applies only to the portion of the rent payments (i.e., XXXXX) attributable to the percentage of the building, occupied by XXXXX, that is owned by the joint venture operator.

Interpretation Given

It is our opinion that a participant (e.g. financial institution) in a joint venture who enters into a lease agreement with the joint venture operator for a supply of a portion of the real property that is subject to the joint venture agreement, is required to pay tax calculated on consideration that is equal to the fair market value of the use, occupation or possession of that property by the participant.

While the participant, who is engaged in exempt activities, will be paying GST based on fair market value rent, it will receive the benefit of full input tax credits (ITCs) claimed by the operator of the joint venture in relation to the joint venture expenses. Under normal circumstances, the participant would not have been able to claim ITCs in respect of these expenses, but because the activity is carried on by means of a joint venture there is some benefit to the participant.

This means that XXXXX having entered into a lease agreement with the joint venture operator for XXXXX of the space that it occupies in the building, is required to pay tax calculated on consideration that is equal to the fair market value of the total space it occupies in the building.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-8530.

Yours truly,

Dwayne Moore
Goods Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate

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