Co-Tenants Take Note : CRA Clarifies its Position on GST/HST Filing for Joint Ventures

For the purposes of the fourth requirement, the Canada Revenue Agency (the "CRA") defines a "participant" in a joint venture as a person or entity that, pursuant to a written agreement, has either a financial interest in the joint venture or is responsible for the managerial or operational control of the joint venture.

Despite this policy, it is common (particularly in the real estate context) to rely on section 273 to elect a bare trustee or nominee corporation as the "operator" for the purposes of reporting GST/HST on behalf of the co-venturers. A bare trustee or nominee will commonly hold legal title on behalf of a joint venture, but will not own a beneficial interest or have any decision-making authority in the joint venture.

The CRA recently addressed this practice in GST/HST Notice 284 (February 2014) in which it stated that a person is only considered to have managerial or operational control of a joint venture where the person is authorized to "manage the joint venture’s daily activities without requiring the input or approval of the other participants". The CRA observed that nominee corporations generally act only at the direction and control of the beneficial owners and that these entities are often used only to hold assets on the beneficial owners' behalf. According to the CRA, a nominee corporation that serves only this limited function does not qualify as a "participant" for the purposes of the section 273 election.

The CRA Notice acknowledged that, in some cases, joint venture participants have previously elected a bare trustee or a nominee corporation as its "operator" for the purposes of GST/HST filing, notwithstanding that it does not meet CRA's definition of a "participant". The CRA has advised its auditors not to assess for GST/HST owing simply because a bare trustee or a nominee corporation was improperly designated as the "operator" for the purposes of section 273 of the Act.

However, the CRA is only extending this administrative tolerance for reporting periods ending before January 1, 2015, and the CRA's administrative position is contingent on: (a) all GST/HST returns having been filed; (b) all amounts having been remitted; and (c) all the joint venture participants otherwise being in compliance.

Joint ventures should review their current arrangements to confirm whether or not they are compliant with the CRA's policies. Non-compliant joint ventures should restructure their GST/HST filing arrangements prior to the end of the grace period, as failing to do so could result in interest and penalties.

As always, the Tax Group at Robins Appleby LLP would be pleased to answer any questions regarding section 273 elections and is available to help you determine what steps your joint venture may need to take in order to comply with the requirements of the Act.