Taxation law

CRA will no longer tolerate joint venture reporting by certain companies for purposes of GST

Feb 10th, 2014

By Alexandre Dufresne

A common practice for real estate owners has been to file a joint venture election whereby a company is mandated by the owners of real estate to be the “operator” of a joint venture. The said election allows the operator to report GST on behalf of the owners, which is much simpler for administrative purposes than having all of the co-owners report their share of the GST.

The Canada Revenue Agency (“CRA”) has recently indicated that this practice is contrary to legislation; however, CRA’s administrative practice was to tolerate same and not assess the co-venturers. Quebec also takes the position that this practice is contrary to legislation and regularly assessed on this basis.

Unfortunately, CRA has announced that it would no longer tolerate such practices for reporting periods ending after January 1, 2015.

It is our opinion that CRA and Revenue Quebec’s position regarding joint venture elections is incorrect. Both governments state that a company cannot be the “operator” of a joint venture if it merely retains title to assets which are beneficially owned by the other joint venturers. The governments fail to recognize that such a company can be part of a joint venture since it incurs liability to third parties, signs contracts, issues cheques and provides services which have a value. The governments’ stance also creates a bureaucratic conundrum as more reports will have to be processed, but the remitted GST/QST will remain unchanged.

Nonetheless, CRA’s new administrative policy cannot be ignored and parties who are in similar situations should consult their tax advisor in order to ensure that they are properly structured and that their GST/QST reporting are in line with the governments’ policies.

Alexandre Dufresne is the Managing Shareholder of Spiegel Sohmer Inc., a legal firm in Montreal.