Administrative definition of a "participant" in a joint venture

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST Policy Statement P-106

DATE OF ISSUE

November 7, 1993

SUBJECT

Administrative definition of a "participant" in a joint venture

LEGISLATIVE REFERENCE(S)

Section 273 of the Excise Tax Act.

NATIONAL CODING SYSTEM FILE NUMBER(S)

11660-6

EFFECTIVE DATE

January 1, 1991

TEXT
Issue and Decisions:

Pursuant to section 273 of the Excise Tax Act, a joint venture election is available to the operator of a joint venture and a participant in the joint venture where the joint venture agreement is evidenced in writing and the activity of the joint venture is the exploration or exploitation of mineral deposits or a prescribed activity.

The term "participant" is not defined in the Excise Tax Act or the regulations thereunder. The following administrative definition has been developed to determine whether a person is a participant in a joint venture for the purposes of section 273 of the Act.

"Participant" means:

1. a person who, under a joint venture agreement evidenced in writing, makes an investment by contributing resources and takes a proportionate share of any revenue or incurs a proportionate share of the losses from the joint venture activities; or
2. a person, without a financial interest, who is designated as the operator of the joint venture under an agreement in writing and is responsible for the managerial or operational control of the joint venture.

SAMPLE RULING NO. 1

Statement of Facts

1. Company A and Company B enter into a joint venture agreement evidenced in writing for the construction of a building.
2. Company A contributes the land.
3. Company B contributes the money to cover the construction costs.
4. Company A and Company B will share proportionately in the revenues or losses from the joint venture activities.

Ruling Requested

Are Company A and Company B participants in the joint venture for the purposes of section 273 of the Act?

Ruling Given

Since Company A and Company B have each made an investment by contributing resources in the joint venture which is evidenced in writing and will share proportionately in the revenues or losses of the joint venture activities, both companies are participants for the purposes of the joint venture election in section 273 of the Act.

SAMPLE RULING NO. 2

Statement of Facts

1. Company A and Company B have entered into a joint venture agreement evidenced in writing for the construction of a building.
2. Company A and Company B hire Company C to manage the joint venture.
3. The joint venture agreement indicates that Company C will manage the joint venture and lists some of the activities that Company C will perform.

Ruling Requested

Is Company C a participant of the joint venture?

Ruling Given

Since Company C has been designated the operator of the joint venture and is responsible for the managerial or operational control of the joint venture, Company C is a participant for the purposes of the joint venture election in section 273 of the Act.

SAMPLE RULING NO. 3

Statement of Facts

1. Company A and Company B have entered into a joint venture agreement evidenced in writing for the construction of a building.
2. Company A and Company B hire Company D as a general contractor for the construction of the building.
3. Company A and Company B agree to pay Company D a set fee for its contracting services.

Ruling Requested

Is Company D a participant for the purposes of section 273 of the Act?

Ruling Given

Company D is not a participant of the joint venture as it has not made an investment by contributing resources to the joint venture and is not sharing in the revenues or losses resulting from the joint venture. Neither has it been designated the operator of the joint venture with managerial or operational control of the activities of the joint venture.

Date modified:

2002-08-01