26 May 2004 GST/HST Ruling 36728 - Tax Application of Road Construction Services Provided by the City of XXXXX to the Province XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to transactions involving partnerships. We apologize for the delay in our response.

Statement of Facts

Our understanding of the facts is as follows:

1. A partnership is controlled by two partners each of which is a corporation.

2. The partners are registered for GST purposes, but the partnership is not.

3. A partnership agreement exists, which specifies the contributions of each partner.

4. Corporation A contributes

(i) Premises

(ii) Management

(iii) Financing

(iv) Information services

(v) Financial reporting

(vi) Accounting services

(vii) Cost management

Corporation B contributes

(i) Knowledge and expertise

5. Corporation A pays the majority of the costs that are incurred on behalf of the partnership. Corporation A will report, for financial statement purposes, these costs incurred to support the partnership activities within the financial statement of the partnership. Corporation A wants to be reimbursed for costs incurred on behalf of the partnership. These costs include:

•   allocations of premises costs for space occupied by the partnership in space leased or owned by Corporation A,

•   allocations of salaries and benefits for staff involved in direct sales of product by the partnership,

•   allocations of salaries and benefits of staff involved in management and administrative activities relating to partnership activities,

•   allocations of costs incurred for information services that support sales and financial management and communication for business relating to partnership activities.

Interpretation Requested

You would like confirmation that since the partnership agreement specifies that Corporation A will contribute the majority of the services and will thus incur these expenses on behalf of the partnership, GST will not be applicable when Corporation A is reimbursed for these expenses by the partnership pursuant to subsection 272.1(1) of the Excise Tax Act (ETA).

Interpretation Given

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.

As discussed with you, we would require additional information to respond to the specific situation described. For example, we would need to review the terms of the partnership agreement and clarify the actions of the partner. However, we would like to provide the following comments.

While it is not certain from the information provided, it appears that the items contributed by partner A to the partnership were first acquired by partner A for use in its own activities. Where property or a service is not acquired by the partner for consumption, use or supply in the activities of the partnership, subsection 27[2].1(2) and section 175 do not apply.

In general, where a corporation who is a member of a partnership supplies property or a service from its business to the partnership for consideration, the supply would be otherwise than in the course of the partnership activity in which case subsection 272.1(3) would apply.

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) 954-4394.

Yours truly,

Doris McMullan
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate

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