Section 273 of the Excise Tax Act (Canada) authorizes one participant in certain types of joint venture (called the "operator") to account for GST/HST on her behalf and on behalf of the other co-venturers. For example, if A (25%), B (25%), C (25%) & D (25%) enter into a joint venture, they can appoint A as the operator and A charges, collects, and remits GST/HST and files GST/HST returns on behalf of the joint venture. A also claims input tax credits, refunds, rebates and other GST/HST relief in respect of the activities of the joint venture (to the extent permitted). If the joint venture election is not in place, A, B, C, and D would each have to charge, collect and remit 25% of the GST/HST, take 25% of the input tax credits and other relief, and file separate GST/HST returns.
The bad news is that not all joint ventures are entitled to take advantage of this election option. Only oil and gas exploration joint ventures and prescribed joint ventures can benefit at this time. That being said, the list of prescribed joint ventures was recently amended (after 20 years) and the Department of Finance is willing to consider making additions in the future. The list of prescribed joint ventures is set out in the Joint Venture GST/HST Regulations:
- the construction of real property, including feasibility studies, design work, development activities and the tendering of bids, where undertaken in furtherance of a joint venture for the construction of real property;
- the exercise of the rights or privileges, or the performance of the duties or obligations, of ownership of an interest in real property, including related construction or development activities, the purpose of which is to derive revenue from the property by way of sale, lease, licence or similar arrangement;
- the marketing by the operator of a joint venture, under any agreement between the operator and a co-venturer, of all or part of the co-venturer’s share of the output of the joint venture provided that the output arises from an activity conducted under the agreement referred to in subsection 273(1) of the Act;
- the transportation of natural gas liquids by means of a pipeline that operates as a common carrier of natural gas liquids;
- the operation of a facility that is used to generate electricity;
- the operation of a transmission line that is used to transmit electrical power;
- the processing of output (in this paragraph referred to as the “refinement”) that arises from the exploration or exploitation of a timber resource, including any jointly conducted exploration or exploitation activity of which the output is processed under the agreement referred to in subsection 273(1) of the Act in respect of the refinement and the marketing of the processed or unprocessed output that arises from that activity;
- the production of a fertilizer and its marketing;
- the disposal of waste, including the collection and transportation of waste that is in furtherance of that disposal;
- the exercise of rights or privileges, or the performance of duties or obligations, of ownership of an interest in an animal for the purposes of deriving revenue from prizewinning, stud service fees or sale;
- the maintenance of a road, other than maintenance that is an exempt supply;
- the operation and maintenance of the North Warning System;
- the operation of a farming business within the meaning of the Income Tax Act;
- the production of liquid methanol from natural gas;
- the generation and recording of seismic data; and
- the operation of a lumber, plywood, shake and shingle, pulp, paper or similar wood processing facility.
With respect to commercial real estate, there are certain restrictions in the activities that are prescribed above.
There are a number of rules that must be followed. Some of the most important (but not all the rules) are:
1. There MUST be a written joint venture agreement;
2. The co-venturers MUST complete the joint venture election forms (GST Form 21 and GST Form 355); and
3. The parties to the joint venture are jointly and severally liable for all GST/HST obligations of the joint venture.
The structuring of joint ventures can be complicated and meeting the requirements of the Canada Revenue Agency requires strategic planning. There are great benefits, but also pitfalls.