Navigating New GST/HST Joint Venture Election Proposed Rule Changes: Key Insights for Family-Owned Enterprises

Recent legislative proposals have introduced significant changes to the GST/HST Joint Venture Election rules under the Excise Tax Act. These amendments have crucial implications for family-owned enterprises involved in joint ventures.

Summary of the Key Amendments:

1. Definitions and Qualifications:

• The amendments define essential terms like ‘qualifying joint venture’, ‘qualifying operator’, and ‘qualifying participant’.
  • A ‘qualifying joint venture’ is a non-person entity operating under a written agreement focusing on commercial activities.
  • A ‘qualifying operator’ must be a Canadian resident, not bankrupt, and have reporting periods as fiscal months. They can either be a participant in the joint venture or designated as an operator with primary responsibility for day-to-day operations.
  • A ‘qualifying participant’ is a significant contributor to the joint venture’s resources and has mutual control or management rights.

2. Commercial Joint Venture Election:

• The qualifying operator of a joint venture can make an election with a qualifying participant. This election becomes effective if no other similar election is in effect for that joint venture on the chosen day.

3. Effects of the Election:

• If elected, certain supplies made by the qualifying operator on behalf of the participant are deemed to be made by the operator for tax purposes. This affects the calculation of net tax and the application of sections 222 and 232 of the Act.
• The threshold amounts for both the operator and the participant are adjusted as if the consideration for supplies made was due to the operator, not the participant.
• The operator, instead of the participant, is responsible for paying tax under specific conditions, particularly concerning property or services used exclusively in joint venture activities.

4. Revocation and Cessation:

• The election can be jointly revoked by the involved parties. It ceases to be effective on the earliest of the revocation date or the day on which the parties could not make such an election.

5. Joint and Several Liability:

• Parties making or purporting to make an election under this provision are jointly and severally (or solidarily) liable for all obligations under this part of the Act resulting from activities under the agreement.

Implications for Family-Owned Enterprises:

• Enhanced Flexibility: These changes offer more flexibility in managing GST/HST implications within joint ventures, which is particularly beneficial for family-owned businesses engaged in collaborative commercial activities.
• Administrative Ease: By allowing the qualifying operator to handle tax obligations, the administrative burden on participants can be significantly reduced.
• Risk of Joint Liability: Enterprises must be cautious about joint liability implications. It’s crucial to ensure that all parties in the joint venture are compliant with their tax obligations to avoid unintended liabilities.
• Need for Accurate Documentation: Maintaining detailed and accurate documentation is paramount, especially concerning the written agreement that underpins the joint venture’s qualification.

Conclusion:

These legislative proposals represent a significant shift in the tax landscape for joint ventures. Family-owned enterprises must understand these changes and adjust their tax strategies accordingly. Consulting with the tax professional at Shajani CPA is highly recommended to navigate these regulations effectively and leverage the benefits while mitigating potential risks.

For more information see Government of Canada Legislative Proposals Relating to the GST/HST Joint Venture Election Rules or or or schedule a meeting with the tax professionals at Shajani CPA.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.