Is Your Joint Venture GST/HST-compliant?
There is less than 6 months remaining until the expiry of the Canada Revenue Agency’s (“CRA”) administrative tolerance for non-compliant joint venture nominee corporations to report and claim input tax credits (“ITC’s”) in respect of GST/HST payable on behalf of the joint venturers. Earlier this year, the CRA released an administrative bulletin advising that joint venture bare trust nominee corporations that are not ‘participants’, as that term has been defined administratively by the CRA, for the purposes of GST/HST-reporting pursuant to Section 273 of the Excise Tax Act (Canada) will, as of January 1, 2015, be disqualified from reporting and claiming GST/HST ITC’s on behalf of joint ventures. The CRA’s position on this issue is particularly relevant to joint ventures established in connection with real estate development and investment.
What is required for a nominee corporation to qualify as a ‘participant’ within the meaning of the CRA’s administrative policy? Where the nominee corporation does not contribute resources to the joint venture (and share proportionately in the JV’s revenue or losses), the nominee must have sufficient authority to exercise the level of managerial and operational authority necessary to run the daily functioning of the joint venture, by, for example, making operational decisions on behalf of the JV, such as the hiring of personnel or contractors.
Thus, if the sole purpose of the nominee corporation is to hold title to a property for the participants of a joint venture and lacks independent powers, discretion or responsibilities in respect of the JV, there is a significant risk that the CRA will reject the nominee corporation as a ‘participant’ and deny GST/HST ITC’s claimed on behalf of the JV.
If your joint venture has a nominee corporation that does not contribute financially to the joint venture and its sole purpose is to hold title to the assets of the JV (without any authority to operate or manage the JV), you are encouraged to review whether the activities of the nominee corporation are sufficient for it to qualify as a ‘participant’. If there is a concern that it may not qualify, restructuring the affairs of the joint venture may be in order now to ensure that, by January 1, 2015, any GST/HST ITC’s in respect of amounts paid on account of GST/HST for the acquisition of property or services by a joint venture are not disqualified by the CRA.
For further details and information, please visit CRA Notice 284, which can be found at the following link:
Canada Revenue Agency Excise Tax Act input tax credits joint venture nominee restructuring