Nominee Corporations and GST HST - Bennett Jones LLP

1. CRAWFORD ON REAL ESTATE TRANSACTIONS©
2014 ED.
NOMINEE CORPORATIONS AND GST/HST COMPLIANCE
SIMON CRAWFORD and DOUGLAS CHEN
GST/HST apply to the sale, transfer, barter, exchange, licence, rental, lease, gift, or disposition of real
property, and anything done in the course of, or in connection with, such transactions.1 Generally, the
vendor collects from the consumer, and remits to the government, GST/HST payments. Registered
persons or organizations ("Registrants") can claim Input Tax Credits ("ITCs") to recover GST/HST
payments made in the course of their commercial activities. However, for GST/HST purposes, a joint
venture ("JV") is not a "person" and cannot become a Registrant. This means each co-venturer must,
individually, register, and collect and remit GST/HST payments based on their respective interest in the
JV.
Section 273 of the Excise Tax Act2 provides certain JVs relief from the above scenario. Section 273
allows JVs formed for the exploration or exploitation of mineral deposits or for a prescribed activity3 to
elect one of the co-venturers, who is a Registrant, to be the "Operator". Upon this election, the Operator
can claim ITCs, and collect and remit GST/HST payments, relating to the JV's activities, on behalf of
themselves and the other co-venturers.
In February of 2014, the CRA issued a notice indicating that bare trusts and nominee corporations are
often incorrectly elected to be Operators.4 Such an election is incorrect because bare trusts and nominee
corporations, in their common use, are not "participants" for the purposes of s. 273 ("Participants") and
only Participants can be elected to be Operator of a JV.
A Participant must (a) contribute resources, and take a proportionate share of any revenue or incur a
proportionate share of the losses from the JV's activities or (b) be responsible for the managerial or
operational control of the JV. Managerial or operational control means authority to manage and approve
the JV's daily activities, but does not necessitate authority to initiate significant business decisions, such
as purchasing or selling assets. Simply being responsible for the significant duties necessary to run the JV
is enough. An example of this is the ability to engage personnel or contractors on behalf of the JV.
However, since bare trusts and nominee corporations usually only hold legal title for beneficial owners
and perform various tasks at the direction of such beneficial owners, they typically do not qualify as
Participants, and are ineligible to be elected as Operators.
Despite JVs frequently electing "non-Participant" bare trusts or nominee corporations to be Operators, the
CRA has instated a period of administrative tolerance. As long as a JV's returns have been filed and
amounts have been remitted, and the JV's Participants are otherwise fully compliant, auditors will not
assess for GST/HST owing, even if an assessment could be raised for a "non-Participant" bare trust or
nominee corporation being elected to be Operator. However, this period of administrative tolerance is
expiring on January 1, 2015. As such, to avoid reassessments by the CRA, any uncertainty or concern
regarding the status of a bare trust/nominee corporation Operator should be resolved before then.
1 This conclusion is arrived at by combining the definit ion of "taxable supplies" and "commercial act ivit ies" found at the Cana da Revenue
Agency's website at ht tp://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst -tps/glssry-eng.html.
2 RSC 1985, c E-15.
3 As defined in Joint Venture (GST/HST) Regulations SOR/91-36, s3 at http://laws-lois.justice.gc.ca/eng/regulat ions/SOR-91-36/index.html.
4 Canada Revenue Agency, GST/HST Not ices Not ice 284, "Bare Trusts, Nominee Corporat ions and Joint Ventur es" (February 2014).