Joint-ventures (JVs) with nominee corporations or bare trustees
that have been elected to account for the GST/HST of the JV should
be aware of the period of CRA administrative tolerance expiring on
January 1, 2015. This situation is often seen in the context of JVs
for the development of real property.
Generally, a person involved in commercial activity will be
required to register for GST/HST (i.e., become a
registrant), and accordingly will collect GST/HST on its sales and
claim input tax credits (ITCs) for GST/HST paid on its
expenditures. However, for GST/HST purposes, a JV is not a
"person" and cannot itself become a registrant. This
means each co-venturer is responsible for becoming a registrant and
accounting for its own portion of the GST/HST collected by the JV
and for claiming its own portion of ITCs incurred by the JV. This
can lead to administrative nightmares for JVs.
Fortunately, section 273 of the Excise Tax Act allows
many JVs to elect for a "participant" in the JV to be the
"operator". The operator is then allowed to account for
all of the GST/HST collected, and to claim all of the ITCs incurred
by the JV (essentially allowing the JV to be considered its own
separate entity for GST/HST reporting purposes).
However, a "participant" is not defined in the Act.
Under the CRA's administrative interpretation, a
"participant" in a JV (i.e., a person eligible
to become the operator) is a person that (a) has a financial
interest in the JV (i.e., one of the co-venturers), or (b)
is responsible for the managerial or operational control of the
Often, the co-venturers of a JV for the development of real
property will use a nominee corporation or a bare trustee to hold
title to the real property to be developed. Generally, the bare
trustee will have legal ownership of the real property, but has no
other duties, obligations or responsibilities other than to
transfer, under the absolute control and instructions of the
co-venturers, title to the real property. In many cases, the
co-venturers desire to elect the bare trustee as the operator for
The problem with electing the Bare Trustee as the
"operator" is that it does not have a financial interest
in the JV and has no responsibilities or discretion of its own.
Accordingly, the CRA does not consider a Bare Trustee to fit within
its administrative definition of "participant" and
therefore ineligible to be designated as an
In the past, the CRA has tolerated the election of bare trustees
as an operator. However, this is about to change. The CRA has
provided notice that their period of administrative tolerance will
expire January 1, 2015. Therefore, to avoid costly disputes with
the CRA, JVs should consider ensuring that their operators fit
within CRA's administrative definition of
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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