Proposed Joint Venture Election Rules for GST/HST purposes

The draft legislation relating to the proposed JV Election Rules has been released for public consultation up until and including March 15, 2024. This will allow stakeholders’ views to be taken into consideration prior to finalizing the design of those rules and the tabling of enacting legislation. The measures related to the proposed JV Election Rules will only apply on royal assent of the enacting legislation, and this will not happen until the end of the public consultation period at the earliest. We do not know at this time when those rules will apply, and it is possible that changes will be made to the draft legislation between now and the end of the public consultation period due to the public consultation.

1. Making and filing the election

Currently, the election does not have to be filed with the Canada Revenue Agency (CRA). Each party to the election simply completes and signs the election form and then keeps it in their records. They may have to provide a copy to the CRA only when requested. The same applies when the election is revoked. 

Under the proposed new rules, the details of the election or revocation, including the effective date, would have to be filed in prescribed manner with the CRA.  

2. Activities eligible for the election 

Currently, to be able to make the election, the activities carried out by the joint venture are limited to “prescribed activities”, such as the construction and holding of real property, activities relating to natural resources, and farming, among others. 

Under the proposed new rules, the condition that the joint venture activities must be eligible activities set out in the legislation or regulations will be replaced with the requirement that all or substantially all of the activities carried out by the joint venture be “commercial activities” (as that term is defined for GST/HST purposes). That means that activities involving the making of exempt supplies will not qualify for the election, unless such exempt activities represent less than 10 per cent of the total activities carried out by the joint venture. 

3. Electing participants in the joint venture election 

Under the current rules, only the operator of the joint venture election must be a GST/HST registrant (which for all intents and purposes, means they are registered). The electing participants, other than the operator, do not have to be GST/HST registrants. 

Under the proposed new rules, all electing participants will have to be registered for GST/HST purposes for the election to be valid. They must be involved in the joint venture and contribute resources for consumption, use or supply in the course of the joint venture activities and thereby obtain an interest in the property that is the subject matter of the joint venture and a right of mutual control or management of the joint venture.

4. Deeming measures 

Currently, all properties and services that are supplied, acquired, imported or brought into a participating province by the operator on behalf of the electing participants in the course of activities for which the joint venture agreement was entered into are deemed to be supplied, acquired, imported or brought into the province, as the case may be, by the operator and not by the electing participants. 

Likewise, all supplies of property or service made by the operator to the electing participants, under the joint-venture agreement, are deemed not to be supplies to the extent to which the property or service is acquired by the participant for consumption, use or supply in the course of commercial activities that the joint venture agreement was entered into. 

Under the proposed new rules, the existing deeming measures will be replaced with revised deeming measures that are more precisely focused on tax accounting. 

5. The joint venture agreement must be evidenced in writing 

Under the current rules, it is required that the joint venture be evidenced in writing. There is no requirement that the agreement includes any specific details. 

Under the proposed new rules, the joint venture agreement would also have to describe the subject matter of the joint venture, as well as the activities, obligations and entitlements of the participants and operator.

6. New requirements to qualify as operator 

Under the current rules, it is required that the operator be a participant in the joint venture and a GST/HST registrant. The Canada Revenue Agency also administratively accepts as operator a person, without a financial interest, who is designated as the operator of the joint venture under a written agreement, and is responsible for the managerial or operational control of the joint venture.

Under the proposed new rules, the operator will have to be a resident of Canada, be a monthly filer for GST/HST purposes, not be bankrupt and either be a “qualifying participant” or a person designated as the operator of the joint venture under the joint venture agreement that has primary responsibility for the operational control over the carrying on of the day-to-day operations of the joint venture.

A qualifying participant would be a GST/HST registered person that is engaged in all or substantially all in commercial activities. That person would have to be a participant in the joint venture that contributes resources for consumption, use or supply in the course of the joint venture activities, and thereby obtaining an interest in the property that is the subject matter of the joint venture and a right of mutual control or management of the joint venture. 

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.