Canada: Clampdown On Improper Joint Venture GST/HST S.273 Election But Regime To Be Expanded

Last Updated: February 14 2014
Article by Kenneth Keung

On February 6, 2014, the CRA issued its final warning, in the form of GST/HST Notice No. 284, to joint ventures that use bare trust nominees to file GST/HST returns on their behalf. The CRA has always maintained that such practice is inconsistent with section 273 of the Excise Tax Act (the "ETA") and announced that it will no longer tolerate the practice after 2014. Interestingly, as part of the 2014 Federal Budget released less than a week afterwards, the Department of Finance proposed to expand the section 273 election regime so that more commercial joint ventures can benefit from the regime.

Generally speaking, a joint venture is where 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. See CRA's Policy Statement on distinguishing between a joint venture and a partnership for GST purposes here – a partnership is a "person" for GST/HST purposes, while a joint venture is not.

Since a joint venture is not a person for GST/HST purposes, a joint venture is not permitted to be a GST registrant in its own right. Instead, each participant in a joint venture has the obligation to be registered for GST/HST purposes and to collect and remit GST/HST, unless the small supplier exception (or certain other limited exceptions) is met. To address this, section 273 of the ETA provides for an election under which joint venture participants elect one "participant" that is a GST/HST registrant to be the operator, who will, on behalf of the other participants, account for the GST/HST collectible on taxable supplies and claim input tax credits on expenses incurred. Currently, this election is only available if the activities of the joint venture are prescribed by regulations as eligible activities. These prescribed activities generally relate to the real estate, resources and energy sectors.

The term "participant" is not defined in the Act, but it has been a long standing policy of the CRA that for purposes of the section 273 election a "participant" means:

  1. 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
  2. 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.

Despite the CRA's published policies, it has become common place for joint ventures (particularly in the real estate and the oil and gas context) to rely on the section 273 election to make a bare trustee (usually a nominee corporation with no actual authority) the "operator" and have it report GST/HST of the joint venture on behalf of the participants. For example, a group of investors purchase land and sets up a bare trust with a corporation as trustee, whose sole duty is to covey legal title of the land on demand of the investors. If the corporate trustee becomes a GST/HST registrant and files returns in respect of the land by virtue of having been elected as the operator, this would run afoul of CRA's policy because the corporate trustee has neither made an investment in the joint venture nor is it responsible for the "managerial or operational control" of the joint venture. Consequently, the CRA could assess the investors individually for any GST/HST owing in respect of the land.

Administratively, the CRA has held back from enforcing this policy as long as it was satisfied that the right amount of GST/HST has been reported and remitted under the nominee's returns and the joint venture participants were otherwise fully compliant. On GST/HST Notice No. 284 issued on February 6, 2014, the CRA announced that it will no longer tolerate this practice and will begin assessing joint venture participants for GST/HST owed for reporting periods ending after 2014 if the designated operator does not meet its requirements of a "participant".

In the Notice, the CRA describes what constitutes as having "managerial or operational control" of a joint venture: the person must have the authority to manage the joint venture's daily activities without requiring the input or approval of the other participants, although the scope of such authority does not necessarily need to include significant business decisions such as acquisitions and divestures of core assets. The CRA adds that where the person does not engage staff to perform the operator's duties, it is doubtful that the person would be considered to have the managerial or operational control of the joint venture.

Currently, there are many real estate joint ventures and oil and gas joint ventures that have nominee corporations registered and accounting for joint venture activities as the operator under the section 273 election. All participants in such arrangements, other than those participants qualifying for the small supplier exception, will be reassessed for GST/HST owing plus arrears interest for reporting periods ending after 2014. Additionally, the consequences of non-compliance can include failure-to-file penalties of up to 4% of the unremitted GST/HST. It is therefore important for joint ventures to review their GST/HST filing arrangements and ensure going forward that the operator is a participant who meets the CRA's criteria.

While we appreciate that the CRA is merely enforcing the words of the ETA, it is difficult to understand the policy reason against this practice given it streamlines administration from both the perspective of the taxpayers and the CRA. Perhaps the timing of this change in enforcement policy is the CRA's anticipation of the Department of Finance proposing a broadening of the section 273 election beyond the prescribed activities. Budget 2014 proposes new measures (and related anti-avoidance rules) that will allow joint venture participants to elect under section 273 as long as the activities of the joint venture are exclusively commercial and the participants are engaged exclusively in commercial activities. The draft legislative proposals will be released later in 2014. Although we applaud the expansion of the section 273 election, the actual impact of this expansion to businesses will likely be narrow since the most common uses of joint venture ownership are already contained in the list of prescribed activities. It will be ideal if the draft legislation will relax the requirements of section 273 and allow a bare trust nominee to be the operator, but we are not hopeful since the Budget documents did not hint at this issue.

Given the CRA's interpretation of what constitutes a participant, a possible solution for an existing joint venture with a nominee corporation setup may be for the nominee corporation to make a nominal contribution into the joint venture and to amend the joint venture agreement to document the contribution and provide the nominee corporation with a proportionate share of any revenue or losses from the joint venture activities. This should make the nominee corporation a "participant" under the CRA's definition and thus eligible to be an operator under the section 273 of the ETA. The nominee corporation may still be a bare trustee if it has no authority over any of the joint venture's activities.

If the plan as described above is undertaken, it will be important to maintain the relationship as a bare trust. For purposes of the ETA, a trustee that has independent powers and responsibilities in relation to the trust property is considered to be carrying on a commercial activity and will be required to account for GST in respect of the trust property. This is in line with the intended GST/HST result. However, for purpose of the Income Tax Act (the "ITA"), subsections 75(2) and 107(4.1) may apply by virtue of the trustee having contributed to the trust so that the trust forever loses the ability to 'roll-out' trust property on a tax-deferred basis (normally an entitlement of a personal trust, i.e. a testamentary trust or an inter vivos trust in which the beneficiaries did not pay for their trust interests). The implication is that the joint venture (being the property of the trust relationship) cannot be returned to the joint venture participants without triggering the recognition of all the underlying gains for income tax purposes. In contrast, this income tax consequence would not arise if the arrangement remains a bare trust even if the bare trustee made contribution to the trust, since bare trusts are ignored for purpose of the ITA.

The impact of the CRA's change in enforcement policy in terms of a bare trust nominee is significant to many existing joint ventures. The CRA knows this and is giving taxpayers close to a year to reorganize their affairs. Taxpayers affected by this need to take full advantage of this transition period and ensure compliance post-2014. And obviously, joint ventures which are currently not eligible for the section 273 election (but are looking forward to being eligible after the implementation of the proposed broadening of that provision) need to keep this issue in mind when structuring their affairs.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Kenneth Keung
Events from this Firm
19 Dec 2017, Webinar, Calgary, Canada

By December 19, 2017, the world should know whether or not the US was successful in implementing landmark and historic tax reforms – the largest and most impactful such reforms since 1986. These reforms appear to touch virtually every American individual and business, and will ultimately affect many Canadian individuals and businesses directly or indirectly as well.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions