7 January 1991 Income Tax Severed Letter - Withholding of Tax from a Payment to a Joint Venture Having a Non-resident Member

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.

Subject: Section 105 of the Regulations to theIncome Tax Act(“Regulations”) and Joint Ventures

This is in response to your memorandum dated December 3, 1990 concerning withholding of tax under section 105 of the Regulations from a payment to a joint venture having a non-resident member.

As you indicated, a joint venture is not a person nor is it deemed to be one for the purposes of the Act. Each participant of a joint venture is considered to be conducting its own business so that it receives each income and incurs each cost to the extent of its participation in the joint venture. Accordingly, where a non-resident of Canada is a participant of a joint venture that is performing services in Canada, a proportion of the fees or other amounts paid to the joint venture for those services, equal to the proportion of the gross joint venture revenues that are proportioned to the non-resident under the joint venture agreement, would be subject to withholding tax pursuant to section 105 of the Regulations.

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It is our view that where a joint venture would be considered to be carrying on business in Canada for the purposes of section 253 of the Act if it was a non-resident person, any non-resident member of such a joint venture will also be considered to be carrying on that business in Canada. Accordingly, the non-resident would be subject to tax in Canada pursuant to subparagraph 115(1)(a)(ii) of the Act on any income he derives from such business. In addition, if a joint venture would be considered to have a permanent establishment in Canada for the purposes of an income tax convention that Canada has with another country, it if were a resident of a contracting state for the purposes of that convention, any member of such a joint venture who is resident in that country will generally be considered to have a permanent establishment in Canada. However, there is sufficient uncertainty in this area that we would be prepared to review the factual details of the live case, should this position be challenged.

It should be noted that in many situations so called joint ventures will qualify as partnerships for purposes of the Act. As indicated in Interpretation Bulletin IT-90, in determining whether or not a particular arrangement constitutes a partnership, the Department will normally view the relevant provincial partnership law as being persuasive in making the determination. While the Bulletin does not provide any guidelines for distinguishing a partnership from a joint venture it does discuss factors which may be considered when reviewing such arrangements.