GST/HST Policy Statement

P-138R THE EFFECT OF MAKING A JOINT VENTURE ELECTION ON A PARTICIPANT'S ELIGIBILITY TO REGISTER AND CLAIM IMPUT TAX CREDITS

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Issue and Decisions:

Since a joint venture is not a "person" for GST/HST purposes, it cannot register in its own right. Therefore, under the general rules, each participant in a joint venture must generally account for the tax collected or collectible on its share of supplies of property or services made in the course of the joint venture and claim input tax credits for the tax paid or payable on acquisitions, importations, or the bringing into a participating province of property or services (subsequently referred to collectively as "purchases") in the course of the joint venture, unless an election is made pursuant to section 273 of the Excise Tax Act (the Act).

Subject to the exception provided for in subsection 141.01(7) and described below, where a joint venture operator and another participant (called a co-venturer) make an election pursuant to section 273, purchases and supplies made by the operator on behalf of the co-venturer in the course of the joint venture are deemed under subsection 273(1) to be made by the operator, not the co-venturer. Subsection 273(1) also deems any supplies made by the operator to the co-venturer for use in the commercial activities of the joint venture not to be supplies.

The election does not, however, affect the tax status of supplies made directly by the co-venturer (not through the operator), nor does it affect the co-venturer's liability for collecting and accounting for tax on those supplies.

Therefore, once an election is made pursuant to section 273, a co-venturer will not:

Subsection 273(1) does not affect a co-venturer's eligibility to register and claim input tax credits in respect of expenses incurred directly (not through the operator). Therefore, when an election is made pursuant to section 273, the general rules will continue to apply when determining if a co-venturer can register and claim input tax credits in respect of expenses that were not paid through the operator.

According to section 240, generally, a co-venturer may register for the GST/HST if it is engaged in a "commercial activity", as defined in subsection 123(1), in Canada. The election under section 273 will not affect the determination of whether the co-venturer is engaged in a commercial activity in Canada. That is, where a co-venturer is engaged in a commercial activity in Canada before the election is made, it will continue to be engaged in that activity after the election is made. Therefore, a co-venturer engaged in a commercial activity in Canada may register regardless of whether the election has been made.

In addition, according to section 169, a registered co-venturer may claim an input tax credit, subject to the usual restrictions, for all or part of the tax paid or payable on any property or service the co-venturer directly acquires, imports, or brings into a participating province, to the extent that the property or service is for consumption, use or supply in the course of its commercial activities. Note that, where property or a service is consumed or used, or is acquired, imported or brought into a participating province for consumption or use, section 141.01 is used to determine the extent to which the property or service was consumed or used, or is to be consumed or used, in the course of a commercial activity.

According to section 141.01, generally, the extent to which property or a service is consumed or used, or is to be consumed or used, in the course of a commercial activity depends on the extent to which the consumption or use, or intended consumption or use, is for the purpose of making taxable supplies for consideration. Where an election has been made pursuant to section 273, it would initially appear that section 141.01 would preclude a co-venturer from claiming an input tax credit for any tax paid on property or services consumed or used, or to be consumped or used, in relation to joint venture activities, because subsection 273(1) deems any taxable supplies made by the operator on behalf of the co-venturer to have been made by the operator, not the co-venturer, and therefore the co-venturer could not have acquired the property or service for the purpose of making those supplies.

Nevertheless, according to subsection 141.01(7), among other things, where a supply is deemed under another provision of Part IX of the Excise Tax Act not to have been made by a person, that deeming shall not apply for the purpose of subsections 141.01(1) through (4). Therefore, although subsection 273(1) deems supplies made by the operator on behalf of the co-venturer not to have been made by the co-venturer, for the purpose of subsections 141.01(1) through (4), this deeming does not apply. As a result, the co-venturer is still considered to have made these supplies.

Where the co-venturer is a financial institution, its entitlement to an input tax credit in respect of inputs that relate partly to its commercial activities, including joint venture activities, would be unaffected if the financial institution were to make the election. The financial institution would continue to use a reasonable allocation method which takes into account its joint venture activities when calculating the input tax credit to which it is entitled.

For information about a co-venturer's tax liability on joint venture sales and purchases where a joint venture election is not made, see Policy No. P-139R.

SAMPLE RULING

Statement of Facts

Corporation A, which is registered for the GST/HST, is a participant in a joint venture for a commercial activity. Corporation A has made an election with the operator of the joint venture to designate the operator as the person who will account for the GST/HST with respect to the joint venture activities.

The only activity in which Corporation A is involved is the joint venture. Corporation A incurs some expenses for the joint venture directly, however, other expenses, such as legal and accounting fees, are incurred indirectly through the operator.

Rulings Given