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SUCCESSion: Tax & Estate Matters

Jan 22, 2015

New Year Brings New Assessment Practices for Joint Ventures

If you are a member of a joint venture that is in the business of developing or managing real estate, there is a good chance that you and your co-venturers have already taken advantage of the election permitted by section 273 of the Excise Tax Act to simplify the reporting of the joint venture's GST/HST. By electing under section 273, one of the joint venture participants can be appointed as the "operator" and would be responsible for reporting GST/HST on behalf of all the joint venture participants.

The policy of the Canada Revenue Agency ("CRA") is that an entity only qualifies as a joint venture "participant" for the purposes of the election if it either has a financial interest in the joint venture or if it is responsible for the managerial or operational control of the joint venture. Despite CRA's policy, joint ventures often elect a bare trustee or nominee corporation (a "Nominee") to act as their "operator". Nominee corporations are often used by real estate joint ventures to hold only legal title to a particular property, however they generally do not have any active management role in the joint venture, nor do they have a financial interest in the joint venture. As a result, CRA does not view Nominees as "participants" that can be elected as operators for the purposes of reporting GST/HST.

Historically, CRA has tolerated the practice of using a Nominee to report GST/HST on behalf of the joint venture participants if the correct amounts of tax were being reported. However, in February 2014, CRA released a policy statement advising joint venture participants that its auditors had been instructed to only continue permitting this practice until December 31, 2014. For reporting periods that end after January 1, 2015, CRA's auditors may begin to assess joint venture participants who continue to rely on a Nominee to report the GST/HST of the joint venture.

Joint ventures will need to take steps to ensure that their GST/HST is being collected and reported in compliance with CRA's policy, if they have not do so already. This may involve changing the manner in which your joint venture is currently structured or managed, or arranging for the completion of a new form to elect a different operator for your joint venture. Since CRA's period of administrative tolerance has now ended, joint ventures that are not currently compliant should take appropriate action as soon as possible.

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Keywords

GST  |  HST  |  Joint Venture

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