Participants in joint ventures, particularly those in the
commercial real estate sector, who frequently elect bare trustees
or nominee corporations to report GST/HST on their behalf, should
be aware of a recent announcement by the Canada Revenue Agency
(CRA) in GST/HST Notice No. 284 - Bare Trusts, Nominee Corporations
and Joint Ventures. For reporting periods ending after 2014, the
tax authorities will no longer tolerate the use of bare trustees or
nominee corporations that do not have sufficient managerial or
operational control of the joint venture. The administrative
tolerance available for the remainder of 2014 is contingent upon a
joint venture's full compliance with current GST/HST
obligations, and the understanding that joint ventures will
restructure, where necessary, to ensure that, beginning January 1,
2015, any elected operator is recognized as an actual
"participant " in a joint venture.
GST/HST joint venture election
As a joint venture is not recognized as a "person"
under the Excise Tax Act (ETA), it cannot register for GST/HST
purposes. In theory, each participant in a joint venture would have
to register and separately account for its share of GST/HST
obligations. To simplify what would otherwise be burdensome
co-reporting obligations, section 273 of the ETA currently allows
joint ventures with activities in certain prescribed sectors to
elect one of the participants to serve as the "operator"
who collects and remits GST/HST on behalf of the venture. The
"operator" can also claim, on behalf of the other
participants, any input tax credits with respect to the joint
venture's expenses (a "JV Election").
Bare trusts and nominee corporations
Pursuant to the CRA's GST/HST Policy Statement P-106, the
"operator" of a JV Election must be either:
(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
When an operator does not contribute resources and could only
qualify as a participant because of its managerial or operational
control of the joint venture, the CRA requires that the participant
exercise the level of management authority necessary to run the
daily functioning of the joint venture.
From the tax authorities' perspective, bare trusts and
nominee corporations are often mere shell entities that have no
authority in a joint venture other than to hold the legal title to
property. Thus, these entities cannot be recognized as eligible
operators under a JV Election. As a result, there has been a
considerable increase in audit activity relating to the use of bare
trustees and nominee corporations in the context of JV Elections,
as well as voluntary disclosures undertaken in reaction to the
CRA's increased enforcement of its position. While the tax
authorities recently asserted that, rather than retrospective
audits, their focus would now be on ensuring compliance and the
need for joint ventures with ineligible operators to undertake
future restructuring, the latest announcement marks the twilight of
this administrative tolerance. On a go-forward basis, post-2014,
the tax authorities will require full adherence to their position
that operators must be eligible participants in the joint venture
either by way of contributing resources and sharing proportionately
in revenue or losses, or by exercising sufficient managerial and
Steps to take before the December 31, 2014 deadline and for
future JV Elections
All joint ventures that have made a JV Election should evaluate
whether their elected operators meet the requirements to be
considered an "operator" and whether they have sufficient
management and control. If necessary, restructuring measures should
be established and implemented before December 31, 2014. Joint
ventures that elected an operator should also ensure that their
current tax obligations are up to date. More generally, given that
the 2014 federal budget just announced plans to expand the
availability of JV Elections to all commercial joint ventures,
those considering taking advantage, in the future, of the expanded
availability of the JV Election should ensure that their elected
operators have the requisite level of operational and management
JV Elections in Quebec
Quebec provincial tax authorities have already confirmed that,
in administering JV Elections for GST/HST, as well as for QST
purposes, they will follow the approach announced by the CRA.
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.
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The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
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