Participants in joint ventures will be relieved to learn that the CRA has issued a temporary administrative policy not to assess GST/HST in certain circumstances where nominee corporations or bare trusts have been acting as operators of a joint venture, but did not qualify as participants. In such cases, the CRA could otherwise assess the nominee corporations or bare trusts to deny the input tax credits (ITCs) claimed for GST/HST paid on property and services acquired in the course of the joint venture’s commercial activities. Although other participants in the joint venture may be able to claim these ITCs , this is not always the case. The CRA’s temporary administrative “tolerance” policy (temporary policy) is available for reporting periods ending before January 1, 2015.
As a result of this temporary policy, joint ventures should review their structures and ensure that they meet the GST/HST filing rules before January 1, 2015. Alternatively, some joint ventures and other structures that have nominee corporations that have claimed ITCs may consider other approaches to ensure that they can properly claim ITCs.
GST/HST election for joint ventures — Overview
Under the GST/HST law, a joint venture is not a “person” and, as such, cannot register to collect and remit GST/HST or claim ITCs for tax paid on related expenses. As a result, under the general rules, each participant in the joint venture would have to register for the GST/HST and account for its proportionate share of GST/HST on taxable supplies and purchases in the course of the joint venture’s activities.
However, the law provides a measure to simplify GST/HST accounting for qualifying joint ventures where participants can, under a GST/HST election for joint ventures, elect one participant to act as the “operator” of the joint venture and account for the GST/HST on the other participants’ behalf.
Is the operator a qualifying “participant”?
Under the CRA’s administrative definition of a “participant”, a person must generally meet one of the following conditions to be a participant in the joint venture and to be eligible to qualify as the operator for purposes of the election:
- The person makes an investment by contributing resources and takes a proportionate share of revenue/loses from the joint venture, or
- Where the person has no financial interest, the person is responsible for the managerial or operational control of the joint venture.
Based on the CRA’s administrative policy, it appears that some joint ventures were structured with some nominee corporations and bare trusts did not meet either of those conditions and thus did not qualify as a “participant” of the joint venture. These entities that did not qualify as a participant could not qualify as the operator of the joint venture. As such, the wrong registrants remitted GST/HST or claimed ITCs. This issue raised significant GST/HST filing uncertainties for some joint venture participants.
Participants have an opportunity to arrange their affaires
The CRA has now advised its auditors not to assess GST/HST where an assessment could be raised because a bare trust or a nominee corporation acted as the operator of a joint venture when it did not meet the definition of a “participant” under the joint venture election. This temporary policy, which applies to reporting periods ending before January 1, 2015, only applies to a joint venture where:
- All returns have been filed
- All taxes have been remitted
- All joint venture participants are otherwise fully compliant, and
- The joint venture will arrange its future affairs to ensure that a qualifying participant acts as the operator of the joint venture as per the CRA’s administrative policy.
The CRA’s temporary administrative position was announced in GST/HST Notice No. 284 “Bare Trusts, Nominee Corporations and Joint Ventures”, released on February 6, 2014.
The CRA’s temporary policy does not apply to GST/HST accounting in other structures involving nominee corporations or bare trusts. For example, if a single beneficial owner of a commercial property registers the title in the name of a nominee corporation or bare trust, the CRA’s administrative policy is that the beneficial owner, and not the nominee corporation or bare trust, should register for purpose of commercial activities relating to the property and account for the GST/HST, including claiming ITCs.
In addition, the joint venture election for simplified GST/HST is different from the election for selling and billing agents to account for GST/HST on sales by a principal. The election for selling and billing agents do not have to be made with agents that have operational or managerial control of the principal’s operations. However, these elections do not extend to allow the agents to claim ITCs, as is the case for operators under qualifying joint venture elections.
We can help
KPMG can help you review your joint venture structures and determine whether they qualify for the GST/HST joint venture election. If your structures do not currently meet all the election requirements, KPMG can help you address the issues and benefit from CRA’s administrative policies, including the temporary policy, if the joint ventures are audited. This could include ensuring that appropriate elections and agreements are in place, you are remitting the appropriate amount of GST/HST, and you have the proper documentation to support ITC claims.
KPMG can also advise you on amending your current arrangements to qualify for the joint venture election. KPMG takes an integrated approach in reviewing these situations, including the GST/HST, income tax and accounting implications. In addition, KPMG’s affiliated law firm, KPMG Law LLP, can work with your legal counsel to ensure that contractual issues are addressed.
Further, in structures involving nominee corporations and bare trusts that have claimed ITCs, KPMG can assist by determining if your GST/HST filings are consistent with the CRA’s general administrative policy relating to nominee corporations, bare trusts and agency.
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Information is current to February 10, 2014. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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