In the beginning of 2014, the CRA issuedGST/HST Notice No. 284 – Bare Trusts,
Nominee Corporations and Joint Ventures announcing that as
of January 1, 2015, it will no longer allow joint ventures to elect
for a nominee corporation or a bare trustee corporation to be the
operator of a joint venture where such nominee or bare trustee does
not have an ownership interest in, or operational or managerial
control over, the joint venture.
On its own, a joint venture is incapable of registering for a
GST/HST account because it is not considered to be a
"person" for the purposes of the Excise Tax Act. Instead, a participant
in a joint venture is capable of making an election pursuant to
section 273 of the Excise Tax Act to be the operator of
the joint venture. Such operator will then register and account for
the GST/HST on behalf of the joint venture.
Many real estate joint ventures are established between joint
venturers using nominee corporations to hold title. In
certain situations, these joint ventures have elected for such
nominee corporations to be the operators of the joint ventures. In
these situations the nominee corporations not only hold title to
the real estate, they also file GST/HST returns and remit GST/HST
to the CRA on behalf of the joint ventures.
The law requires that the operator be a participant in the joint
venture. This requirement can be met when the operator has an
ownership interest in, or managerial or operational control of the
joint venture. However, as nominee corporations are often
viewed by the tax authorities as mere shells with no authority
other than to hold legal title to the real estate, the practice of
using a nominee company as an operator does not satisfy the legal
requirements under the Excise Tax Act for an operator.
Since the inception of the GST in 1991, the CRA has shown
"administrative tolerance" towards the practice of using
a nominee corporation to act as the operator to collect and remit
GST/HST on behalf of the venture. However, through GST/HST
Notice No. 284 – Bare Trusts, Nominee Corporations and Joint
Ventures the CRA has made it clear that it will not
permit this practice to continue past the end of the year.
Participants of joint ventures that have elected to use a
nominee company for GST/HST purposes should ensure that they take
the necessary steps in order to remain compliant by either naming
one of the joint venturers as the operator for GST/HST purposes, or
ensuring that the nominee company is an entity that meets the
CRA's definition of a participant. With 2015 only weeks away,
joint venturers who have not already taken the required steps
should contact their lawyer to ensure that their joint venture is
compliant with the CRA's new position.
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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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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