Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
DATE: July 14, 2015
FROM:
William Parker
Special Provisions - FI Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
LPRAB
TO:
[Addressee]
FILE: 162351
SUBJECT: GST/HST INTERPRETATION
Eligibility of a partner to collect and remit GST/HST on behalf of a partnership
Thank you for your [correspondence] received [mm/dd/yyyy], […] concerning the eligibility of a partner to collect and remit Goods and Services Tax (GST)/Harmonized Sales Tax (HST) on behalf of a partnership.
[INTERPRETATION REQUESTED]
[…] whether the Partnership […][can] jointly elect with a member of the Partnership under subsection 177(1.1) of the Excise Tax Act (ETA) to have the member collect and remit the GST/HST on supplies made to third parties.
All legislative references are to the ETA unless otherwise specified.
Our understanding is as follows:
1. The Partnership is formed under the laws of […][a provincial act] and is registered for GST/HST purposes and required to collect and remit GST/HST on taxable supplies made by the Partnership.
2. The Partnership’s Business Number is […] and it has an RT account for GST/HST purposes effective [mm/dd/yyyy].
3. The “Partnership Business”, as defined in the partnership agreement entered into by the parties on [mm/dd/yyyy] (the “Partnership Agreement”), includes […][the supply of taxable services and taxable goods]. Generally, the Partnership invoices the third party customers for these taxable supplies and records the revenue, including GST/HST, as an account receivable in its general ledger.
4. […][ACo] is a partner in the Partnership with a […][more than 90%] initial interest, but is not the general partner or the partner referred to as the “Managing Partner” in the Partnership Agreement.
5. [ACo]’s Business Number is […] and it has an RT account as a registrant for GST/HST purposes effective [mm/dd/yyyy].
6. Based on the Partnership Agreement, “Managing Partner” means […][BCo] or such other Partner designated as Managing Partner by written agreement of the Partners. [BCo] is the Managing Partner and holds the remaining […][less than 10%] initial interest in the Partnership.
7. The “Partnership Property”, as defined in the Partnership Agreement, includes all rights, properties, assets and interests, real and personal property, tangible and intangible, of whatever nature and kind, including choses in action and services contributed to the Partnership by the Partners and otherwise acquired from time to time by the Partnership or by the Partners on behalf of the Partnership, whether in the course of managing the Partnership Business or otherwise.
8. Based on the Partnership Agreement, the Partnership or the Managing Partner has the authority to manage and control and further the Partnership Business and any action taken by the Managing Partner on behalf of the Partnership is deemed to be an act of the Partnership and binds the Partnership: for example, preparing financial statements, maintaining accounts, books and other relevant Partnership records and documents.
9. The Partnership Agreement provides that the Managing Partner may appoint any other Partner as a co-managing Partner for the purposes of assisting the Managing Partner to perform its duties.
10. The Partnership Agreement states that the Partnership (and not the Managing Partner) is responsible for the payment of […][GST/HST], if any, with respect to the Managing Partner’s costs and expenses to be reimbursed by the Partnership. Further, the Partnership is to claim on its [GST/HST] return all input tax credits in respect of [GST/HST] paid on goods and services acquired by the Managing Partner on the account of the Partnership. The Partnership Agreement states that alternatively, the Managing Partner may remit the Partnership’s [GST/HST] and claim the Partnership’s input tax credits on its behalf.
11. The Partnership Agreement sets out that income and losses of the Partnership, amounts received by the Partnership and other expenses (including Partnership costs of acquiring resource property from a Partner) and credits are generally allocated among the Partners in accordance with their partnership interest. All distributions are distributed to the Partners pro rata in accordance with their partnership interest unless otherwise agreed to in writing by all of the Partners at the time of Distribution.
12. […], [ACo] issued a number of invoices in its own name for consideration and tax in respect of certain supplies made to third parties. [ACo] collected the consideration and tax from the customers and forwarded the consideration to the Partnership and accounted for tax on supplies made to third parties in its own returns, remitting those amounts on its own BN account […] to the Canada Revenue Agency (CRA).
13. The agreements for the supplies related to the invoices in question indicate that [ACo] was party to the agreements with the exception of one agreement [with] […][CCo] (for […][a Supply]) which was entered into by the Partnership. The Partnership’s representative states that the agreements have been assigned to the Partnership; however, no documentation was provided to this effect.
14. […][Based on information provided]:(Footnote 1):
* The Partnership owns the […] assets […], and [ACo] had prior contractual and business relationships with the counterparties. […] assets are held by the Partnership, […] revenue is reported in the Partnership.
* With respect to […][the Supply] to [CCo], the Partnership is the […][person] [who] would be the party to invoice and collect the tax. However, since [CCo] and [ACo] had a previous relationship which was continued […], [ACo] is billing [CCo].
15. […][Your submission did not include] any agreement authorizing [ACo] to act as agent of the Partnership […]. […] [ACo] [does not] receive any remuneration from the Partnership for services of acting as its agent.
16. A Form GST506, Election and Revocation of an Election Between Agent and Principal, dated [mm/dd/yyyy], was provided specifying an effective date of [mm/dd/yyyy] [approximately 5 months earlier], for the joint election under subsection 177(1.1) to have an agent account for tax on supplies made by a principal. The supplies described in Part C of this form are ongoing supplies of […][taxable services and taxable goods]. The Form GST506 is signed by the same individual, […], for both the Partnership and [ACo].
[…][INTERPRETATION GIVEN]
Every person (including a partnership) who makes a taxable supply in the course of a commercial activity in Canada is generally required to register for the GST/HST, to collect tax payable by the recipient of the supply and to account for the tax in their GST/HST returns.
Section 272.1 provides a detailed set of rules pertaining to the activities of partnerships. For the purposes of Part IX of the ETA, subsection 272.1(1) deems anything done by a person as a member of a partnership to have been done by the partnership in the course of the partnership’s activities and not to have been done by the person.
Thus, any act that a partner does as a member of the partnership is treated for GST/HST purposes as an act of the partnership unless it falls within an exception in section 272.1. Generally, subsection 272.1(2) provides an exception in cases where a partner acquires a property or service for consumption, use or supply in the course of the activities of the partnership on the partner’s account rather than that of the partnership. Subsection 272.1(2) effectively sets aside subsection 272.1(1) such that the partnership is deemed not to have acquired the property or service and the partner is treated as if it was engaged in the activities of the partnership so that, if not an individual, the partner may generally claim an input tax credit.
Subsection 272.1(3) outlines deeming rules that apply when a member of a partnership supplies property or a service to the partnership, otherwise than in the course of the partnership’s activities.
There is no provision under section 272.1 that permits a partner of a partnership to account for GST/HST with respect to supplies made by the partnership. Rather, the aim of subsection 272.1(1) is to require the partnership to file GST/HST returns and account for tax.
In accordance with Policy Statement P-244, Partnerships – Application of Subsection 272.1(1) of the Excise Tax Act, the determination of whether a general partner does something as a member of a partnership for the purposes of subsection 272.1(1) depends on the particular provincial partnership law and the facts of a particular situation. Factors to consider include, but are not limited to, the following:
* The terms of the partnership agreement; agreement among the partners that the partner was responsible for taking the action whether or not in the agreement; and, whether a partner receives separate consideration for a supply of property or a service provided to the partnership.
* The nature of the action taken by the partner.
* The partner’s ordinary course of conduct which includes whether the partner is engaged in a separate business.
[…][At issue is whether] [ACo] can separate itself from the deeming rule in subsection 272.1(1) because [ACo] has not been assigned any specific responsibilities in the Partnership Agreement in its capacity as a member of the Partnership. (Footnote 2) The Partnership Agreement explicitly sets out the responsibilities of the Managing Partner (which is not [ACo]) in carrying out the functions of the Partnership Business, and although it does not set out any specific responsibilities of any of the other partners, it provides that the Managing Partner may appoint any other partner as a co-managing Partner for the purposes of assisting the Managing Partner to perform its duties.
The fact that the Partnership Agreement does not expressly provide that [ACo] is acting as a member of the Partnership in respect of the transactions in question is not evidence that [ACo] is not involved in these transactions as a member of the Partnership. An agreement between partners where a partner acts on behalf of the partnership can be express or implied. Consent among the parties for actions taken by [ACo] is implied in the aforementioned facts including the completion of the Form GST506. (Footnote 3) It is also noted that there is nothing in the Partnership Agreement that prohibits [ACo] from acting in its capacity as a member of the Partnership.
Furthermore, based on the Partnership Agreement, [ACo] does not receive separate consideration for a supply of services provided to the Partnership beyond amounts provided to members in accordance with their partnership interest. Nor does [ACo] appear to operate a separate business of providing services as agent to other parties.
Based on the above, the acts of [ACo] (e.g., including those under Fact #13) clearly fall within subsection 272.1(1) such that they are deemed to have been done by the Partnership and not to have been done by [ACo].
The query asks whether the Partnership could jointly elect with [ACo] under subsection 177(1.1) or subsection 177(1.1) in conjunction with subsection 177(1.11) to have [ACo] collect and remit the GST/HST on supplies made to third parties.
Generally, when a person acts as an agent in making a supply on behalf of a principal, the principal is required to collect and account for tax on the supply. However, under subsection 177(1.1), if a registrant, in the course of a commercial activity of the registrant, acts as agent in making a supply on behalf of a principal who is required to charge tax in respect of the supply, the registrant and the principal may jointly elect to have the agent account for the GST/HST collected or collectible in respect of the supply in its net tax.
Also, under subsection 177(1.11), if a registrant acts as agent of a supplier in charging and collecting the consideration and tax payable in respect of a supply made by the supplier but the registrant does not act as agent in making the supply, the registrant is deemed to have acted as agent of the supplier in making the supply for the purposes of the election in subsection 177(1.1).
Where the conditions set out in subsection 177(1.1), or subsection 177(1.1) in conjunction with subsection 177(1.11) are met, and the principal and the agent have jointly elected under subsection 177(1.1), the GST/HST collected or collectible in respect of the supply is to be included in the net tax calculation of the agent and not of the principal. Subsection 177(1.1) only applies where the supplies are made, or are deemed to be made, by a registrant acting as agent on behalf of the principal in the course of the agent’s commercial activities. Subsection 177(1.11) only applies where the person charges and collects the consideration and tax collectible in respect of supplies made by the supplier as an agent for the supplier.
Subsection 272.1(1) states that, for GST/HST purposes, anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership’s activities and not to have been done by the person. Thus, a person acting as a member of a partnership could not meet the conditions of subsection 177(1.1) or subsection 177(1.11) when subsection 272.1(1) specifically deems supplies made by the person or amounts collected by the person to be done by the partnership in the course of the partnership’s activities and not to have been done by the person.
[…][It is our view that], [ACo] acting as a member of the Partnership, cannot jointly elect with the Partnership under subsection 177(1.1) or subsection 177(1.1) in conjunction with subsection 177(1.11) to collect and remit the GST/HST on supplies made to third parties.
[In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation given in this letter, including any additional information is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation or the additional information provided herein.]
FOOTNOTES
1 […].
2 […].
3 A completed Form GST506 alone is not sufficient evidence that an agency relationship exists between parties.
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