Joint Ventures — Reminder to Act Now to Take Advantage of Temporary GST/HST Policy
Time is quickly running out for participants in joint ventures that include nominee corporations or bare trusts to take steps to benefit from the CRA’s GST/HST temporary administrative “tolerance” policy. Under this policy, the CRA will not assess GST/HST in certain circumstances where nominee corporations or bare trusts have been acting as operators of joint ventures, but did not qualify as participants. Participants of joint ventures that don’t apply the CRA’s temporary policy correctly could see the nominee corporations or bare trusts assessed for denied input tax credits (ITCs) claimed for GST/HST paid on property and services acquired in the course of the joint venture’s commercial activities. Revenue Quebec has also adopted this approach.
The CRA’s temporary policy is only available for reporting periods ending on or before December 31, 2014. You should therefore review your joint venture arrangements and make any necessary changes before this date. Specifically, you should ensure that you have:
- Filed all returns
- Remitted all amounts to the tax authorities
- Amended or put in place agreements to reflect the duties of the operator and
relationships of the other participants with the operator that meet the CRA’s definition of a
participant in a joint venture
- Completed and signed all GST/HST and QST election forms with the new operator
- Set up (or cancelled) all GST/HST and QST registrations and business accounts, as
required, to facilitate the new operator’s GST/HST and QST accounting
- Met the information requirements for documentation including invoices from suppliers and
agreements with customers
- Ensured all joint venture participants are fully compliant.
Under the GST/HST and QST rules, a joint venture structure does not qualify as a “person” and, as such, cannot register, collect or remit the GST/HST and QST or claim ITCs or input tax refunds (ITRs) for GST/HST and QST paid on related expenses. As a result, each participant of the joint venture would be required to register for GST/HST and QST purposes and account for its proportionate share of the tax on taxable supplies and purchases.
However, the GST/HST and QST rules provide a special election where, in general, the participants of a qualifying joint venture can nominate one “participant” to act as the “operator” of the joint venture. The operator will account for GST/HST and QST on taxable supplies made by the operator on behalf of all the other participants and can claim ITCs and ITRs on expenses incurred by the operator on behalf of the other participants for activities of the joint venture.
To qualify as a participant in a joint venture and to be designated as the operator for purposes of the simplified GST/HST and QST accounting election for the joint venture, the person must be either:
- 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 losses from the joint venture activities, or
- 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 and operational control of the joint venture.
In some cases, a nominee corporation or a bare trust has been nominated as the operator of the joint venture. However, under the CRA’s and Revenue Quebec’s administrative policy, these corporations and trusts do not generally qualify as a “participant” and, as such, cannot act as the operator of a joint venture. In the CRA’s and Revenue Quebec’s view, these nominee corporations and bare trusts do not qualify as participants because they do not have a financial interest in the joint venture or have managerial or operational control of the joint venture’s activities. This interpretation puts at risk the ITCs claimed by the operator that relate to the joint venture’s activities.
Under the CRA’s temporary administrative policy, the CRA will generally not assess GST/HST where a nominee corporation or bare trust is acting as the operator of a qualifying joint venture. This policy is contingent on confirmation that all returns have been filed, all amounts have been remitted, and the joint venture participants are otherwise fully compliant. Further, the joint venture must arrange its future affairs to ensure that a qualifying “participant”, as defined in the CRA’s administrative policy, is an operator of the joint venture. In addition, because many “bare trusts” and “nominee corporations” do not qualify as the operator of the joint venture, some joint venture participants will need to adjust their role and documentation.
Story by: KPMG