Section 273

Subsection 273(1) - Joint Venture Election

See Also

Medallion Corporation v. The Queen, 2018 TCC 157

a property management agreement with a rental property’s sole owner qualified as a GST/HST joint venture
The Notice of Appeal and Reply are clear that no s. 273 election was made and the Notice also indicates that the rents from the rental properties included "residential rents."

The appellant (“MC”) entered into 10 agreements each entitled “Joint Venture Agreement” (JVA) with corporations with which it did not deal at arm’s length (“Owners”) in which it agreed to provide property management services respecting one or more rental properties of each Owner. The JVAs gave MC the right to negotiate leases and permit occupancy, which it did, and provided that most significant decisions were to be made unanimously by a “Joint Venture Management Committee (JVMC)” comprised of a representative of each of MC and the Owner. MC was entitled to a percentage of the gross revenues that it collected. The Minister assessed on the basis that there was no joint venture between MC and the owners, so that its share of the gross revenues was subject to GST/HST.

After repeating the Williston indicia of a joint venture (quoted in Westcan), Russell J rejected the Crown’s submissions that each of the four italicized tests below were not satisfied:

"A joint property interest in the subject matter of the venture"

…“[P]roperty” [in s. 123(1)] … “includes a right of interest of any kind”. This language would cover MC’s contractual right, pursuant to the JVAs, to lease the subject Properties in its own name. Accordingly, MC and the Owners do have joint property interests in the aforesaid subject matter of the JVs. … (para. 27)

"A right of mutual control or management of the enterprise"

… MC (and each pertinent Owner) has a representative on each JV’s JVMC, and … decisions can only be made “by mutual agreement”… . MC has no say, other than a right to notice, as to any sale of any of the Properties … [but] [a]ny Property sales simply would be outside the purview of “the enterprise of each alleged JC”. (para. 28)

"Expectation of profit, or the presence of 'adventure' as it is sometimes called"

…There is no evidence that MC’s intention … was other than to make a profit though management of the leases of the Properties, in a JV context. …There was no guarantee of profit, and MC did have its share of expenses … to recoup. Income earned annually, less applicable expenses, would be on income account not capital account. (para. 29)

"A right to participate in the profits"

[T]he JVAs in each instance gave MC and the relevant Owner(s) the right to take percentages of the GROI [gross revenue] as specifically agreed and assigned by each JVA. MC and the relevant Owner(s) were separately responsible each for their own expenses. If the Respondent is saying that MC had no ability to share profit from sale of any of the Properties, the answer is that any sale of a Property simply was beyond the scope of the JVs as asserted in this case … . (para. 31)

Words and Phrases
joint venture
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply property manager's share of rents in rental JV was not taxable consideration 329

Lau v. The Queen, [2007] GSTC 171, 2007 TCC 718

bare trustee was the operator for the contruction and sale of condos

The appellant was the director of a corporation ("Golden Leaf" - confusingly referred to in the reasons for judgment as "GL Trust") which was a bare trustee holding title to property for another company and a trust under a joint venture agreement to build and sell residential condominiums in Richmond B.C. The Minister assessed Golden Leaf on the basis that it was the operator under a joint venture election and, as such, was liable for unremitted GST under the self-supply rule in s, 191(1) - and then assessed the appellant under s. 323(1) when the corporate assessment was not paid.

Before going on to find that Golden Leaf was not liable for the s. 191(1) assessment on the basis that no joint venture election had been made, McArthur J found (at para. 21) that Golden Leaf was a "participant" in the joint venture as it "partook and shared in the responsibilities of the joint venture through its management of the lands."

DeWinter v. Consolidated Food Brands Inc. (1998), 43 B.L.R. (2d) 106 (B.C.S.C.)

no JV: company not agent of sales rep; no community of interest

A terminated sales agent claimed that he was engaged in a joint venture with the company whose products he had been distributing, so that he had a proprietary interest in the territory covered by him for which he was entitled to compensation. In rejecting this claim, Beames J stated (at paras. 30-31):

Williston on Contracts, as quoted in Canlan Investments Corp. v. Gettling (July 18, 1996), Doc. Vancouver C954829 (B.C.S.C.) at para 59, defines the term "joint venture" as follows:

In summary, then, a working definition of joint venture based on the actual judicial decisions may be thus formulated: A joint venture is an association of persons, natural or corporate, who agree by contract to engage in some common, usually ad hoc undertaking for joint profit by combining their respective resources, without however, forming a partnership in the legal sense (of creating that status) or corporation; their agreement also provides for a community of interest among the joint venturers each of whom is both principal and agent as to the others within the scope of the venture over which each venturer exercises some degree of control.

I cannot find on the facts of this case that the plaintiff and the defendant were in a joint venture. The plaintiff was, without question, and by express agreement between the parties, the agent of the defendant. I do not find that the defendant was an agent of the plaintiff in any way. I similarly do not find a "community of interest" between the parties. Further, there was no arrangement for a sharing of profits between the parties, merely a commission sales agreement. Consequently, on this issue, I conclude that the plaintiff must fail… .

Words and Phrases
joint venture

Westcan Malting Ltd. v. The Queen, [1998] G.S.T.C. 34

no shared proprietary and revenue-split interests in project

In order that the appellant (“Westcan”) could be assisted in building a malting plant near the Village of Alix, Alberta, the Village received federal and provincial grant money of $3.1 million and agreed with Westcan to pay the grant money to Westcan after Westcan had constructed the effluent facilities for the Village (which, in form, would be responsible for running them.)

In finding that this arrangement did not constitute a joint venture for s. 273 purposes, Teskey J first quoted (at para. 52) from an extended extract from Central Mortgage & Housing Corporation v. Graham, 43 D.L.R. (3d) 686 (N.S.S.C.) including the following passage from Williston on Contracts:

[T]he decisions are in substantial agreement that the following factors must be present:

(a) A contribution by the parties of money, property, effort, knowledge, skill or other asset to a common undertaking;

(b) A joint property interest in the subject matter of the venture;

(c) A right of mutual control or management of the enterprise;

(d) Expectation of profit, or the presence of “adventure”, as it is sometimes called;

(e) A right to participate in the profits;

(f) Most usually, limitation of the objective to a single undertaking or ad hoc enterprise. …

Teskey J then stated (at para. 55):

I do not find there existed the right to participate in profits nor an expectation of profit, from the infrastructure for either party. The benefit accruing to Alix from the infrastructure would not be in the form of profit, but rather a decreased tax rate available to its citizens should the Appellant locate in the municipality. The benefit accruing to the Appellant from the infrastructure is that it gets its water and sewage disposal at cost with very little capital outlay. There does not exist the element that a financial interest is at stake, nor is there an assumption of risk in the overall success or failure of the joint utilities program. I am not convinced that both parties had a joint property interest in the infrastructure necessary to constitute a joint venture.

Words and Phrases
joint venture

Central Mortgage & Housing Corporation v. Graham, 43 D.L.R. (3d) 686, 1973 Canlii 1244 (N.S.S.C.)

mortgagee liable as also being in joint venture with builder

The plaintiff (“CMHC”) had sued for foreclosure with the purchaser (the Grahams) counter-claiming for alleged defects in the building against both CMHC and the builder (Bras D’Or) on the basis that CMHC and Bras D’Or were engaged in a joint venture. Graham J held that CMHC was more than a mere mortgagee and was responsible as a co-venturer with Bras D’Or for the sold building not being in habitable condition, stating (at pp. 709-710):

In my view, there was a contribution by both parties of money, property, skill and knowledge to a common undertaking. There was a joint property interest in the subject-matter even though evidenced only in the mortgages. The parties had a mutual control and management of the enterprise during the construction of the houses and in the sales. The arrangement was limited to this project. There is no doubt that Bras D’Or intended a profit from the project. While there was a mutual sharing of the profits, Central Mortgage clearly had a financial interest at stake and was vitally concerned with the successful completion of the venture….

Administrative Policy

28 February 2019 CBA Roundtable, Q.23

Medallion decision under review

Medallion appears to widen the concept of a “participant” to a person contributing property management services alone. The appellant had no ownership interest in the joint venture properties and the facts do not indicate that it was responsible for managerial or operational control of the joint venture.

In light of Medallion, for s. 273 purposes can a participant in a joint venture include a person that only contributes solely property management services to the joint venture pursuant to a written joint venture agreement? CRA responded

We are currently reviewing the extent to which the Medallion decision would affect our position with respect to the issue of who can be considered to be a participant in a joint venture for purposes of section 273 of the ETA, and this includes taking into consideration the issue described in the question.

May 2017 CPA Alberta Roundtable, GST/HST Q.3

construction of fixture qualifies

The construction of a pipeline likely would qualify as “the construction of real property … including … development activities” under the Joint Venture (GST/HST) Regulations “to the extent that it is affixed to the ground and intended to remain there on a permanent basis.”

8 March 2018 CBA Commodity Tax Roundtable, Q.11

nominee can be a “participant” in a real estate JV if it also has a small beneficial interest/JV means JV at law

Does a nominee title holder of the joint venture property that makes a small financial contribution to the joint venture, in exchange for a small co-ownership interest in the property of the joint venture and an entitlement to share in the profits (or losses) of the joint venture in proportion to its co-ownership interest, qualify as a “participant” in the joint venture as described in para. (a) of the definition of “participant” in Policy Statement P-106? Also, can CRA confirm our understanding that it will be issuing its position that where an agreement is a joint venture at law, it is a joint venture for purposes of the election under s. 273, notwithstanding any provision in the particular agreements governing the joint venture which may state otherwise?

CRA responded:

Yes, the nominee with a financial contribution to the joint venture in exchange for a co-ownership interest and proportionate share of profit (or losses) is a "participant” as defined in paragraph (a) above.

Regarding a future publication, we will confirm the position that a joint venture at law is considered to be a joint venture for purposes of the joint venture election under section 273 in a planned publication. Where particular joint venture agreements contain provisions that cause us to question the status of the joint venture, the agreements will be examined.

Excise and GST/HST News No. 103, December 2017

Guidelines for distinguishing joint venture from partnership

The guidelines set out in P-171R may be used to help determine the existence of either a joint venture or a partnership arrangement. However, they are not individually decisive and have no legal force. Also, they should be applied and weighed on a case-by-case basis having regard to the substance of the relationship.

The guidelines relate to the following factors:

  • Are there two or more parties?
  • What is the intention of the parties?
  • Is the arrangement limited to a single undertaking or ad hoc undertaking?
  • Is there a right of mutual control or management?
  • What is the contribution by each participant?
  • Is there joint ownership in the subject matter of the arrangement?
  • Is there freedom to dispose of interests in the property?
  • Is there the expectation of benefits or the presence of an "adventure"?
  • Is there a limitation of liabilities?
  • What is the income tax treatment?
  • What is the format of the agreement?

GST status of joint venture in Quebec

The joint venture relationship is not recognized in Quebec civil law. Nevertheless, Quebec civil law does not prohibit the formation of a joint venture. Therefore, where an arrangement in Quebec is, according to the common law guidelines outlined above a joint venture and not a partnership, it will generally be regarded as a joint venture for GST/HST purposes.

Words and Phrases
joint venture

14 October 2016 Interpretation 170549

Westcan test for JV, co-tenancy was JV

ACo and BCo, which were co-tenants of a property in construction held through a Nominee made a s. 273 election in year X + 2 designating ACo as the operator, and describing the JV activities as being the development and construction of real property. Their co-tenancy agreement was entered into in Year X and their agency agreement with the Nominee was entered into in Year X + 2. The agency agreement provided that the Nominee was the authorized agent of the co-owners for the claiming of input tax credits, and such claims were made for the period of administrative tolerance described in Notice 284.

CRA addressed whether ACo could account for the real estate sales as the designated operator. After first stating that "The CRA will generally apply the criteria expressed in the decision in Westcan Malting ... which provided several indicia for joint ventures," CRA concluded that “The co-tenancy arrangement was, therefore, eligible to make the section 273 election,” Before so concluding, CRA stated:

For the purposes of this discussion we are considering this co-tenancy agreement to be a joint venture at law.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) - Paragraph 240(3)(a) nominee accepted as registrant 156
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) agent could not claim ITCs 157
Tax Topics - General Concepts - Agency co-owners required to report pro rata portions of sale made by their agent 195

May 2016 Alberta CPA Roundtable, GST Q.3

"nominee" with operational control of a JV

Can a "bare trustee" qualify as an operator where, in fact, there is no bare trust for ITA purposes? CRA responded:

Where the only function of a nominee corporation is to hold title to a joint venture's assets and have its name used instead of the names of the participants in the joint venture's dealings with third parties, the nominee corporation does not qualify as a participant for purposes of the joint venture election.

The terms "nominee corporation" and "bare trust" may be used somewhat loosely by businesses. As a result, a so-called nominee corporation or so-called bare trust may in fact have the managerial or operational control of a joint venture…[so that] the so-called nominee corporation or bare trust may be a participant in the joint venture for GST/HST purposes. …

[I]t should be clear to the auditor…that the person is a participant in a joint venture either as a result of an investment by the person in the joint venture or by being designated as the operator of the joint venture responsible for managerial or operational control of the joint venture and the person has been designated as the joint venture operator for the joint venture.

26 February 2015 CBA Roundtable, Q. 13

JV + management agreements can qualify as “an agreement”/“co-ownership agreement” can be a JV agreement
(full text available with membership password at http://www.cba.org/Sections/Commodity-Tax,-Customs-and-Trade/Resources)

Q.1 Can a written agreement, that describes the relationship between the participants as co-ownership of property (rather than as a joint venture), qualify as an agreement evidenced in writing for purposes of s. 273(1)? CRA responded:

It may be possible that a co-ownership agreement may constitute an agreement evidenced in writing for purposes of subsection 273(1) of the Excise Tax Act, but this will be determined on a case-by-case basis. Furthermore, the nature of the agreement must be one of a joint venture at law. This would require at least two participants being participants under paragraph (a) of the definition of “participant” in…P-106… .

Q.2 In Year 1, Corporations A and B enter into a (joint venture) “Initial Agreement” specifying their rights, responsibilities and relationship and under which they contribute resources and share proportionately in revenue or losses from the joint venture activities. In Year 2, they enter into the “Subsequent Agreement” with Corporation C in which it is designated as the operator of the joint venture and is assigned the responsibility for the managerial or operational control of the joint venture. Corporations A and B each execute a Form GST21 with Corporation C. The rights, responsibilities and relationship between Corporations A and B are not discussed in the Subsequent Agreement. Could both the Initial and Subsequent Agreements collectively be considered “an agreement” for purposes of s. 273(1) so that s. 273(1)(c) could apply? CRA responded:

…[T]he CRA may consider the two agreements to constitute a single joint venture agreement with Company C as the participant/operator of that joint venture effective the date the Subsequent Agreement is entered into where no other provisions of the agreement affect the nature of the relationships between the parties. However, this could only be confirmed after examining the agreements.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) 2 related agreements qualify as “an agreement” 129

26 February 2015 CBA Roundtable, Q. 12

joint venture manager whose only personnel are officers jointly appointed to an affiliated co-owner
(full text available with membership password at http://www.cba.org/Sections/Commodity-Tax,-Customs-and-Trade/Resources)

Q.1 Corporation A, which has no employees other than an officer, is designated as the operator of a joint venture under an agreement in writing and is responsible for the venture’s managerial or operational control. Can Corporation A qualify as a “participant” in the joint venture where it subcontracts all of its responsibilities to third parties? That is, if the Corporation subcontracts all of the functions, can it still be a participant? CRA responded:

Where the person does not engage staff to perform any of the operator's duties, it is doubtful whether the person would be considered to have the managerial or operational control of the joint venture, subject to consideration of all relevant facts and agreements.

Where an operator has no staff and contracts out all of its responsibilities to other parties, the officers of the operator are often the same persons as the officers of the other participants (participants under paragraph (a) of the GST/HST Policy Statement P-106 administrative definition of “participant”). This would make it doubtful whether the operator actually has managerial or operational control of the joint venture, subject to consideration of all relevant facts and agreements.

Q.2 Corporation A has, under a joint venture agreement evidenced in writing, made an investment by contributing resources, and takes or incurs a proportionate share of revenues or losses so as to qualify as a participant in the joint venture. Corporation B is designated as the operator of the joint venture under an agreement in writing and so qualifies based on its responsibility for the venture’s managerial or operational control. Would Corporation B be disqualified from being the operator by virtue of being wholly-owned by Corporation A and having the same officers and directors? CRA responded:

[W]here it can be determined based on consideration of all relevant facts and agreements that independent powers are given to Corporation B and that these powers in fact give Corporation B managerial or operational control of the joint venture, then Corporation B could be considered to be the operator of the joint venture.

2 December 2014 Interpretation 164212

JV manager had operational control notwithstanding major-decision approval by co-owners

Various JVs among co-owners were engaged in land development, the construction and sale of new homes and commercial leasing with title being held in nominee corporations. It is proposed that a newly-incorporated corporation (the Manager), to be controlled by an individual who also controls a Co-owner, will provide management services to the JV including arranging contracts with and coordinating the work of subcontractors, consultants and lawyers, arranging financing, bookkeeping services, financial reporting and preparing the JV budgets for Co-owner approval. In the case of a housing JV, the Manager's services also will include the management and supervision of marketing and sales activities. Although the Manager will have the authority to contract on behalf of the JV, major decisions, e.g., approval of a plan of the subdivision, major capital expenditures and financings, will require Co-owner approval. The Manager will receive fees and expense reimbursements. Will the Manager qualify as a participant and operator of the joint venture, so that the Manager and Co-Owners can make a valid s. 273 election? CRA responded:

For a person to be considered to have managerial or operational control of a JV the person must have the authority to manage the JV's daily activities without requiring the input or approval of the other participants. ...

In the absence of a signed agreement between the Co-Owners and the Manager, we cannot state that the Manager would be considered to have managerial or operational control of the JV. However, it appears from the list of responsibilities above that the Manager could have managerial or operational control. If these responsibilities were clearly outlined in the contract and there were no other provisions or other agreements which narrow the scope of said responsibilities, the Manager and Co-owners could be entitled to make the election under section 273.

17 July 2014 Interpretation 152176

no rights of mutual control over purported solar panel JV

Landowner made its real property available for the installation of solar panels and related equipment by the Investor (who retained ownership thereof) in order to generate electricity for supply to the Ontario Power Authority under the Ontario provincial micro-FIT program (under which only the Landowner would be an eligible participant.) Landowner shall be paid the first $X of revenue and the Investor the balance.

In finding that this arrangement does not constitute a joint venture so that the Investor (styled as operator) cannot claim ITCs on behalf of the joint venture, CRA stated:

The Landowner is merely providing access to the land for the construction of the solar project and does not possess any right of mutual control and management of the activity. … One of the characteristics of a joint venture is that the participants have a right of mutual control. … Essential strategic and major decisions such as disposition of assets and large expenditures normally require consent of all the participants.

12 July 2013 Interpretation Case No. 152393

overlapping participants/1 property can have 2 JVs

Six persons enter into a real estate joint venture (JV-1) but do not make a s. 273 election. The same six persons form a new joint venture (JV-2) with a seventh person, who has a 50% interest in JV-2. They appoint an operator of JV-2 and make s. 273 elections.

CRA stated:

[T]here is no prohibition… against more than one joint venture engaging in prescribed activities related to the same property. ...[A]s...a joint venture cannot be a GST/HST registrant and, therefore, it cannot be the operator for another joint venture… JV-1 cannot be the operator of JV-2. However, there is nothing to preclude those persons involved in one joint venture from participating in another joint venture. ... However, when the election under section 273 in respect of JV-2 is entered into, the participants of JV-1 must each sign the election form as a participant in JV-2 as well as the seventh person.

GST/HST Notice 284 "Bare Trusts, Nominee Corporations and Joint Ventures" February 2014

administrative tolerance for nominee operators

After repeating its position that participants in joint ventures may not elect "for a nominee corporation or bare trust to be the operator of the joint venture where the nominee corporation or bare trust does not have the managerial or operational control," and noting that "where the person does not engage staff to perform any of the operator's duties, it is doubtful that the person would be considered to have the managerial or operational control," CRA stated:

Auditors have been advised not to assess for any GST/HST owing where an assessment could be raised because the bare trust or nominee corporation is not a participant for purposes of section 273. This administrative tolerance is contingent upon confirmation that all returns have been filed, all amounts have been remitted and the joint venture participants are otherwise fully compliant. Further, this administrative tolerance is in place with the understanding that, on a going forward basis, the joint venture will arrange its affairs to ensure that a participant, as defined in GST/HST Policy Statement P-106, who is a GST/HST registrant, is the operator of the joint venture.

This administrative tolerance is available for reporting periods ending before January 1, 2015.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 177 - Subsection 177(1.1) agent not entitled to ITCs 113
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(3) - Paragraph 240(3)(a) taxable supply of nominee services 63
Tax Topics - General Concepts - Agency acquisitions of agent those of principal 116

CBAO National Commodity Tax, Customs and Trade Section – 2013 GST/HST Questions for Revenue Canada, Q. 30.

nominee as JV participant
available with membership password at http://www.cba.org/CBA/sections_NSCTS/main/GST_HST.aspx

CRA is not revisiting its policy that a nominee generally will not qualify as a participant in a joint venture, and considers the statement in Lau v. The Queen, [2007] GSTC 171, 2007 TCC 718 regarding the interpretation of "participant" to be obiter. Each case will be examined "to determine whether the duties vested in a particular nominee corporation or a trust referred to as a bare trust are sufficient to be considered managerial or operational control."

28 March 2013 Interpretation Case No. 151697

nominee as operator

After stating that the typical nominee company "does not qualify as a participant for purposes of the joint venture election because it does not have managerial or operational control of the joint venture," CRA went on to state that a nominee could be the operator in the following situation:

An example of a nominee corporation which does have the managerial or operational control of a joint venture would be that of a management company hired by the participants in the joint venture to manage the joint venture's activities and provide its name to the joint venture. For example, the management company would make and receive payments in its own name on behalf of the joint venture and maintain operational control of the daily activities of the hotel. However, the participants in the joint venture would keep the power to make significant decisions (such as selling the hotel) and the management company would report to the participants on a regular basis. Since the management company has operational control, the management company would be considered to be a participant and operator of the joint venture….

21 January 2013 Interpretation Case No. 146302

no staff - no operator

In finding that a nominee corporation was not eligible to be the operator of a joint venture, CRA stated:

Where the person has engaged no staff to perform any of the operator's duties it is doubtful whether they have managerial or operational control… In the scenario, the nominee corporation's functions are not significant enough to be considered as having the managerial or operational control of the joint venture. The nominee corporation has no independent powers, discretions or responsibilities. Its primary responsibility is to hold title to the property for the benefit of the parties and carry out limited functions all at the direction of the parties.

26 November 2012 Interpretation Case No. 148931

cash management and return responsibilities not sufficient

In response to a question as to "whether a bare trust or nominee corporation can be an operator of a joint venture for purposes of section 273 of the Excise Tax Act," CRA noted that eligibility to be designated as an operator turned on having managerial or operational control, and that for this to be the case the "person must have authority to manage the joint venture's daily activities [as contrasted to major decisions] without needing the input or approval of any financial participant." After noting that the "common practice in some industries" of designating bare trustees or nominees as the operator would not satisfy this requirement, CRA stated that the mere addition of cash management and return responsibilities would not change this:

A common scenario is one where an entity, which is referred to as a nominee corporation by the participants, holds title to the assets of the joint venture on behalf of the participants, manages the collection and remittance of the GST/HST, maintains the bank accounts in the nominee's name, and receives all payments and pays all operational expenses on behalf of the joint venture. These responsibilities alone do not convey the nominee corporation the managerial or operational control of a joint venture. As a result, such a corporation would not be considered as a participant and thus, an operator, of the joint venture for purposes of the section 273 election.

10 May 2011 Headquarters Letter Case No. 103495

waste disposal JV

Other municipalities make payments to Municipality A under a joint venture agreement in order to fund designated portions of operating deficits of waste disposal activities. Although the agreement constitutes a joint venture for purposes of the election, the election would not apply to such payments.

Member Advisory

, ICAA newsletter, December 2009: Institute of Chartered Accountants of Alberta, May 2009 Roundtable, Q.1 and Q.4

Question 1. Real Estate Co-Ownership

…Under Policy Statement P-106, a bare trustee cannot make an investment in a joint venture, as described in paragraph (a) of CRA's interpretation of the term "participant" because the investors are the bare trust's beneficiaries. Also, given that a bare trustee is controlled by its beneficiaries, it is not considered as being "responsible for the managerial or operational control of the joint venture" as described in paragraph (b) of the CRA's interpretation of the term "participant". Consequently, a bare trustee cannot be considered as a "participant" to a joint venture for the purposes of subsection 273(1)….

Question 4. Bare Trust Corporations

…While there are situations where section 225 of the ETA would require a trustee of a bare trust to account for the GST that it collected on behalf of another person that is involved in commercial activity, there is no provision in this case to relieve the actual supplier's responsibility to account for the GST on its supplies. In addition, there is no provision that would allow the bare trustee to claim input tax credits on behalf of another person as the bare trustee is not involved in the commercial activity, nor was it the recipient of any related supplies….

19 December 2008 Ruling Case No. 106868 [purchases of JV interest not covered/mutual control requirement]

purchases of JV interest not covered/mutual control requirement

Upon the purchase by participants from XX of an undivided interest (UDI) in a project for the development of land as commercial use lots, they agreed to the terms of a joint venture agreement and a joint venture election in which the vendor was the operator. In finding that the election did not apply to the sale of the UDIs to be participants, CRA stated:

Subsection 273(1)(c) was not meant to address the situation where an operator supplies property it already owns to participants coming into a joint venture which then becomes the subject matter of the joint venture. Such a supply should be more correctly seen as a supply made on the operator's own account… .

CRA also expressed "considerable doubt [as to] whether the Development is truly a joint venture," which requires that there "is a right of mutual control or management of the enterprise by all the participants," whereas here "XX is given absolute control over the Development."

8 March 2007 Canadian Bar Association Commodity Tax Section Roundtable, Q. 30

Q.30 – Joint Venture

….[T]he bare trustee is not seen as carrying on any commercial activity with respect to the trust property, and it is the beneficial owner, rather than the trust, that would be required to register….

If the Trustee Corporation is appointed as the operator under the joint venture agreement, and has been given discretionary powers and responsibilities as the operator (i.e., it has managerial or operational control of the joint venture property) then it is not a bare trustee as described in Policy Statement P-015.

If the Trustee Corporation does have managerial or operational control of the day-to-day activities of the joint venture, and it is making and receiving supplies on behalf of the joint venture participants, then the trust would not be a bare trust, and would be required to register with respect to the commercial activities related to the trust property.

26 May 2006 Ruling Case No. 51850 [operator enters into contracts or is responsible for payments]

operator enters into contracts or is responsible for payments

Before ruling that s. 273(1)(a) applied to deem goods or services acquired by co-venturers to be acquired by the operator and not the co-venturers, CRA stated:

[A]n operator can be said to be acquiring goods or services on behalf of co-venturers when the operator undertakes responsibility for the acquisition of goods or services. This would usually mean the operator entering into contracts or agreements for the acquisition of goods or services within its duties as operator or the operator being responsible for the payment for the goods or services from joint venture funds.

Q.23 – Bare Trustee as "Operator" of Joint Venture

…a bare trustee is not seen as carrying on any commercial activity with respect to the trust property, and thus is not eligible to register….

A bare trustee who was named as the operator of a joint venture but whose only responsibility was to hold legal title to the trust/joint venture property would not be engaged in a commercial activity. A joint venture election in such a case would not be a valid election. The participants in the joint venture could be liable for penalties and interest if a re-apportionment of tax collected and input tax credits showed there was net tax owing on prior returns.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 240 - Subsection 240(1) 25

16 July 2003 Interpretation Case No. 43760

meaning of JV/requirement for mutual control

In finding that an arrangement did not qualify as a joint venture, CRA stated:

Based on caselaw, the following set of guidelines can be used to determine the existence of a joint venture:

1. A contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking;

2. A joint property interest in the subject matter of the venture;

3. A right of mutual control or management of the enterprise;

4. Expectation of profit, or the presence of "adventure", as it is sometimes called;

5. A right to participate in the profits;

6. Most usually, limitation of the objective to a single undertaking or ad hoc enterprise.

Applying the above criteria to this particular case, our main concern is that there does not appear to be a right of mutual control and management. Specifically, the agreement stipulates that the business and affairs of the joint venture are to be managed by a Management Committee [and] XXXXX in effect has control [thereof].

27 February 2003 Canadian Bar Association Commodity Tax Section Roundtable, Q. 13

nominee as operator

…Where a nominee company is registered and is named the operator, it must be responsible for the managerial or operational control of the joint venture. It is questionable whether a nominee company could come within both the definition of operator in P-106 and the definition of bare trustee in P-015.

There may be situations where a nominee company also performs various duties as an agent of the beneficial owner in addition to holding legal title to the real property. Whether a nominee company can "wear two hats" for purposes of the joint venture election would be a question of fact in each case.

11 February 1994 Interpretation 11660-1/0703

sale of co-ownership interest would not be viewed as made by operator

Various tenants in common entered into a joint venture agreement to build and operate a commercial building on land they held through a nominee company. A manager appointed by the Management Committee has been collecting and accounting for all of the GST on the rents and other income from the building. A participant’s interest in the joint venture will be sold for cash to another participant. CRA stated:

[W]here the operator makes the supply of a participant's interest in the joint venture on behalf of that participant to another participant in the joint venture, and the supply is under the joint venture agreement, the operator would be deemed to be making the supply pursuant to paragraph 273(1)(a) and the supply would be deemed not to be a supply pursuant to paragraph 273(1)(c). … [T]he supply of a participant's joint venture interest in this situation would not be under the joint venture agreement. Therefore, the deeming provisions would not apply to the supply of the joint venture interest and the sale would be taxable.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 167 - Subsection 167(1) transfer of co-ownership interest in commercial real estate JV 147

P-171R "Distinguishing Between a Joint Venture and a Partnership for the Purposes of Section 273 Joint Venture Election" 24 February 1999

Definitions of joint venture and partnership

To determine whether a particular relationship is a joint venture or a partnership, the circumstances of the relationship should be reviewed to ascertain whether it is either:

(1) an arrangement in which two or more persons work together in a limited and defined business undertaking, which does not constitute a partnership, a trust or a corporation, the expenses and revenues of which will be distributed in mutually agreed portions (i.e. the Department's administrative definition of "joint venture"); or

(2) a relationship that subsists between persons carrying on business in common with a view to a profit (the Department's administrative definition of "partnership").

iv. [mutual control]

...[E]ssential strategic and functional decisions (e.g. major decisions such as disposition of joint venture capital property, acquisition of new capital property, large expenditures, etc.) normally require the consent of all the participants and they cannot usually be made by one participant acting as agent for another. ...

The participants in a joint venture can set up a joint management board/committee to control and manage the joint venture's activities. Where this occurs, any important decisions to be made by the board/committee should be subject to a unanimous vote of the board/committee or should, at least, require approval by a majority of the board/committee members. The board/committee should include a representative of each participant and is not normally structured so that control is completely delegated to one or more of the joint venture participants. ...

vi. Joint Ownership In The Venture Subject Matter

The production or profits from the joint venture, prior to any allocation to the participants, belong to the participants. The participants, therefore, develop an interest in the joint venture's production during the term of the agreement, and the agreement should confer on each participant an interest in the production equal to the participant's specified interest. The participant's specified interest could be x% of every product produced or 100% of one product and 0% of the other products. ...

[T]he production of a partnership is generally owned by the partnership... .

vii. Freedom To Dispose Of Interest In The Property

Unlike partners, joint venture participants:

  • 1. have a well-defined separation of interests in, and ownership of, the property subject to the joint venture;
  • 2. retain title to any property they contribute...;
  • 3. would usually, but not necessarily, be able to sell their interest in the joint venture without obtaining the consent of the other joint venture participants...;
  • 4. do not necessarily have a joint undivided interest in all the property (e.g. one participant may own one asset while another participant owns another asset or contributes expertise). ...
ix. A Right To Participate In The Benefits

[T]he gross revenues (or production) and expenses of a joint venture are typically allocated to the participants based on their respective interests in the joint venture... .

P-138R "The Effect of Making a Joint Venture Election on a Participant's Ability to Register and Claim Input Tax Credits"

Subject to the exception provided for in subsection 141.01(7)..., where a joint venture operator and another participant (called a co-venturer) make an election pursuant to section 273, purchases and supplies made by the operator on behalf of the co-venturer in the course of the joint venture are deemed under subsection 273(1) to be made by the operator, not the co-venturer.

P-106 "Administrative Definition of A 'Participant' in a Joint Venture"

Extension of "participant" to manager

"Participant" means:

"(a) 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

(b) 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."

Participant where contribute cash or land to building construction venure for right to share in revenues

Sample Ruling No. 1

Pursuant to their JV agreement for the construction of a building Companies A and B contribute land and cash respectively to the venture and agree to share proportionately in revenue and costs. Ruling that they thus are participants.

Example of development manager who is designated by virtue of JV agreement specifying that it will manage and perform listed activities

Sample Ruling No. 2

Companies A and B, who have entered into a written joint venture agreement for the construction of a building, hire Company C to manage the joint venture. “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 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.

Fixed-fee construction contractor not a participant

Sample Ruling No. 3

Companies A and B, who have entered into a written joint venture agreement for the construction of a building, hire Company D as the general contractor for a set fee.

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.

Articles

Ian V. MacInnes, "GST/HST Joint Venture Election", CCH Canadian Real Estate Income Tax Guide, No. 90, April 2012, p. 1

"There would seem to be a reasonable basis to take the position that a Nominee constitutes a participant in a joint venture through the mere act of holding legal title to the property in trust for the co-owners. In light of the CRA's administrative position [in P-106], however, it would seem prudent that the Nominee be given some degree of managerial or operational control...."

Dennis Wyslobicky, "GST and Real Property", 2004 Commodity Tax Symposium, under "5. Real Property Joint Venture - Start-ups".

Forms

GST21 "Election Or Revocation of an Election to have the Joint Venture Operator Account for GST/HST"

This form must be completed for each co-venturer that wishes to jointly elect with you. ... Do not send us the election form. The operator and co-venturer(s) must keep the election form, or copies, on file in case we ask to see them.

Subsection 273(4)

Administrative Policy

26 February 2015 CBA Roundtable, Q. 15

backdated election for valid JV permissible/co-ownership not co-terminous with JV
(full text available with membership password at http://www.cba.org/Sections/Commodity-Tax,-Customs-and-Trade/Resources)

Would the “temporary administrative tolerance” in Notice No. 284 extend to a registered bare trustee filing the returns in a real estate co-ownership situation where no s. 273 election had been made? Would it be possible to now do the election indicating the date the co-ownership began as the effective date? As an analogy, note the 2002 Roundtable, Q.15 indicating that a s. 156 election could be made retroactively if the parties had conducted themselves as if an election were in place (and the other conditions were satisfied). CRA responded:

A co-ownership arrangement does not necessarily have the same characteristics as a joint venture and the section 273 election is generally not available to such arrangements. Furthermore, where there is a bare trust operator for a particular real estate co-ownership arrangement, the co-ownership arrangement cannot make a valid election.

Where in a particular fact situation, there is a valid operator, it can be clearly established that a joint venture exists for purposes of the section 273 election, and the parties were acting as if the election were in place, a back-dated election can be made that dates back to the date of the written co-ownership arrangement.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 156 - Subsection 156(4) backdated elections 51

P-187 "Prescribed Form for Joint Venture Elections," 16 October 1997

retroactive election

As a result of the requirement that an effective date be specified, the participants in the joint venture may complete the election form after the fact.

Subsection 273(5) - Joint and Several Liability

Forms

GST21 "Election Or Revocation of an Election to have the Joint Venture Operator Account for GST/HST"

All electing participants—operator and co-venturer(s)—are jointly and severally liable for all GST/HST obligations related to any activity the operator performs on behalf of the electing co-venturer(s) under the joint venture agreement.