10 March 2011 External T.I. 2010-0388771E5 - Joint venture versus partnership

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a group of investors operating under an agreement entitled a joint-venture agreement are a joint venture or a partnership.

Position: Question of fact.

Reasons: IT-90 sets out a number of criteria to help determine whether an operation is a joint venture or a partnership, but no one factor is decisive.

XXXXXXXXXX 				2010-038877
					J. Gibbons, CGA
March 10, 2011

Dear XXXXXXXXXX :

Re: XXXXXXXXXX (the "Club")

This is in reply to your letter dated July 14, 2010, concerning the filing requirements for the Club.

Although the agreement (the "Agreement") under which the Club operates is a joint venture agreement, it files a T5013 Partnership Information Return and related forms to report its income to the Canada Revenue Agency (the "CRA"). You wish to know whether this method is correct.

The Club was initially formed pursuant to a Joint Venture Agreement (the "Agreement") between XXXXXXXXXX , which acts as a trustee for the Club's business assets including the land (the "Trustee"), and the original "Unitholders". Pursuant to the Agreement, each "Unit" provides for an equal ownership interest in the land and assets of XXXXXXXXXX . Legal ownership is held in the Trustee's name. The Club's business (the "Business") is focused on operating a golf course for members and the public, as well as tournaments. Historically, the Club generates approximately XXXXXXXXXX % of its revenue from weddings, banquets and meetings, with the majority of the revenue generated from the golf course operations. The Club is the beneficial owner of the Business assets, title to which is registered in the name of the Trustee. For the purposes of communicating the net income or loss from the Business to each Unitholder, the Club uses T5013 Partnership Information slips. The Trustee has been noted as a Bare Trustee on its corporate income tax returns, which are filed as nil tax returns since all income and loss is distributed to the Unitholders. The financial statements for the Club are audited on an annual basis. In the audited financial statements, the Club is noted as "a joint venture, which for Canadian tax purposes is considered to be a partnership owned by the members and operated on their behalf by an elected Board of Directors".

Our comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.

We begin by noting that the Club was referred to as a corporation in parts of your letter. As we understand it, the only corporation identified in your letter is the Trustee, which holds the land as a bare trustee. Further, the issue raised in your letter is whether the Agreement creates a joint venture or a partnership; however, if the Club is a corporation, this issue would not be relevant. Accordingly, our comments are based on the assumption that the Club is not a corporation but is either a joint venture or a partnership.

There is no definition of a joint venture or a partnership in the Income Tax Act (the "Act"), and the issue of whether a particular arrangement is a joint venture or a partnership is a question of fact. In this regard, a declaration in an agreement that participants are carrying on business as joint venturers and not in a partnership, is not, in and of itself, conclusive that the agreement constitutes a joint venture agreement. Interpretation Bulletin IT-90, What is a Partnership?, states that the CRA considers a number of factors when determining the nature of an arrangement, with particular emphasis on the partnership law of the province. Nonetheless, the bulletin concludes that no one factor will be decisive but that the factors merely serve as objective criteria on which to base a decision on the existence or non-existence of a partnership.

You have indicated that the Club's audited financial statements state that the Club is a partnership for Canadian income tax purposes. Based on the information submitted, we cannot offer any definitive opinion on whether the Club is a joint venture or a partnership. If the Club is a joint venture, it should not file a T5013 Partnership Information Return or slips to report its income, since this return is designed specifically for partnerships. Unlike a partnership, which, pursuant to the rules in section 96 of the Act, calculates its income from each source as if it were a separate taxpayer resident in Canada and then allocates this net partnership income to each partner, each joint venturer generally does his or her own separate net income calculation by deducting any relevant tax deductions from his or her share of the gross revenue from the joint venture. In this regard, there is no income tax return for a joint venture, and each joint venturer simply reports his or her net income from the joint venture as net business income on an individual or corporate income tax return, as the case may be.

In your letter, you also stated that the Club has received requests from the CRA to report amounts in Box 22-1 - "Limited partner's at-risk amount"- and Box 22-2 - "Limited partner's adjusted risk amount" - but has been unable to comply with this request since the Club does not have access to the adjusted cost base of the Units. If the Club is a partnership, the Club is required to provide amounts for Boxes 22-1 and 22-2 on the T5013 slips for any Unitholders who are limited partners. As indicated in the instructions for Field 22-1 in the T4068, Guide for the T5013 Partnership Information Return 2006, if there is no amount shown in Box 22-1 for a limited partner, the CRA will consider that this amount is zero and the limited partners will not be able to claim any losses shown in boxes 20, 21, 22 and 26 of the T5013 slip.

It is a question of fact whether a particular partner is a "limited partner" within the meaning of this term as defined in subsection 96(2.4) of the Act. Thus, all of the facts and documentation, including the Agreement, would have to be examined to make a final determination. Since this issue, as well as the issue of whether the Club is a partnership, are determinations of fact, you should contact your local tax services office if you require further assistance. You would need to provide a detailed description of all of the facts, as well as a copy of the Agreement and any other pertinent documentation.

We trust these comments will be of assistance.

Yours truly,

G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch