In the beginning of 2014, the CRA issued GST/HST Notice No. 284 – Bare Trusts, Nominee Corporations and Joint Ventures announcing that as of January 1, 2015, it will no longer allow joint ventures to elect for a nominee corporation or a bare trustee corporation to be the operator of a joint venture where such nominee or bare trustee does not have an ownership interest in, or operational or managerial control over, the joint venture.
On its own, a joint venture is incapable of registering for a GST/HST account because it is not considered to be a “person” for the purposes of the Excise Tax Act. Instead, a participant in a joint venture is capable of making an election pursuant to section 273 of the Excise Tax Act to be the operator of the joint venture. Such operator will then register and account for the GST/HST on behalf of the joint venture.
Many real estate joint ventures are established between joint venturers using nominee corporations to hold title. In certain situations, these joint ventures have elected for such nominee corporations to be the operators of the joint ventures. In these situations the nominee corporations not only hold title to the real estate, they also file GST/HST returns and remit GST/HST to the CRA on behalf of the joint ventures.
The law requires that the operator be a participant in the joint venture. This requirement can be met when the operator has an ownership interest in, or managerial or operational control of the joint venture. However, as nominee corporations are often viewed by the tax authorities as mere shells with no authority other than to hold legal title to the real estate, the practice of using a nominee company as an operator does not satisfy the legal requirements under the Excise Tax Act for an operator.
Since the inception of the GST in 1991, the CRA has shown “administrative tolerance” towards the practice of using a nominee corporation to act as the operator to collect and remit GST/HST on behalf of the venture. However, through GST/HST Notice No. 284 – Bare Trusts, Nominee Corporations and Joint Ventures the CRA has made it clear that it will not permit this practice to continue past the end of the year.
Participants of joint ventures that have elected to use a nominee company for GST/HST purposes should ensure that they take the necessary steps in order to remain compliant by either naming one of the joint venturers as the operator for GST/HST purposes, or ensuring that the nominee company is an entity that meets the CRA’s definition of a participant. With 2015 only weeks away, joint venturers who have not already taken the required steps should contact their lawyer to ensure that their joint venture is compliant with the CRA’s new position.
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