Supplies to Joint Venture Participants of Space in a Building Owned by the Participants as Tenants-in-Common with Undivided Interests (Revised March 11, 1998)

Please note that the following Policy Statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

GST/HST policy statement P-172R

Date of Issue

February 21, 1995
Revised March 11, 1998

Legislative Reference(s)

Subsection 165(1), subsection 165(2) and section 273 of the Excise Tax Act
Joint Venture (GST) Regulations.

National Coding System File Number(s)

11660-9, 11950-1, 11950-3.

Effective Date:

January 1, 1991 for GST.
April 1, 1997 for HST.

Text

Issue and Decisions:

Please note that co-ownership of real property can take many forms. This policy applies to real property in which the joint venture participants own undivided interests. The tax treatment of all other forms of co-ownership will depend on the facts of the particular case.

We have been asked to clarify how the GST/HST would apply in the following scenario:

(a) Three registrants, who are not associated, jointly own a commercial rental property.

(b) Legal title to the property is held jointly by all three registrants (i.e. they are tenants-in-common with fractional interests in the property).

(c) The property contains four offices; the co-owners occupy three of the offices and rent the fourth office to an unrelated company.

(d) The co-owners have formed a joint venture to operate and lease the building, but they have not made an election pursuant to section 273 of the Excise Tax Act.

Where the co-owners have formed a joint venture and do not, or cannot, make an election pursuant to section 273, each co-owner would be considered to be making a supply equal to its fractional interest in the building to each of the other co-owners and tenants who occupy premises in the building.

For example, three registrants, Company A, Company B and Company C, have formed a joint venture to operate an office building which they own as tenants-in-common with the following undivided fractional interests:

Company A
25%
Company B
37.5%
Company C
37.5%

The co-owners have not made a joint venture election.

Company A occupies 15% of the building, Company B occupies 20% of the building and Company C occupies 25% of the building. The tenant, Company X, occupies 40% of the building.

Company A would be supplying to Company B and to Company C and to Company X, 25% of the space occupied by B & C & X.

Company B would be supplying to Company A and to Company C and to Company X, 37.5% of the space occupied by A & C & X.

Company C would be supplying to Company A and to Company B and to Company X, 37.5% of the space occupied by A & B & X.

Each owner would charge tax on the supplies made to the other owners and the tenant. To the extent the owners and tenant are engaged in commercial activities, they may be eligible to claim input tax credits for the tax paid or payable. If any owner is engaged in exempt activities in the portion of the building that it occupies, that owner may have to self-assess tax on its interest in that portion.

SAMPLE RULING

Statement of Facts:

1. Four persons, who are tenants-in-common with undivided interests in a building, have formed a joint venture to supply space in the building by way of lease.

2. One co-owner, a financial institution, is not engaged exclusively in commercial activities.

3. The percentage of ownership in the building is as follows:

A
12.5%
B (financial institution)
50%
C
25%
D
12.5%

4. A occupies 25% of the building, B occupies 50% of the building, and C and D both occupy 12.5% of the building.

5. All persons are GST/HST registrants.

6. The co-owners have not made the joint venture election pursuant to section 273.

Ruling Requested:

Each participant will account for the GST/HST on the building according to its percentage share.

Ruling Given:

Each co-owner of the building, held by the owners as tenants-in-common, will be considered to be making a supply to the other co-owners who occupy space in the building equal to its ownership/interest in the building.

Therefore, in this particular joint venture, regardless of the amount of space occupied, A and D will be considered to own 12.5% of the space they occupy, B will be considered to own 50% of the space it occupies and C will be considered to own 25% of the space it occupies.

A will supply 12.5% of the space occupied by B, C and D.

B will supply 50% of the space occupied by A, C and D.

C will supply 25% of the space occupied by A, B and D.

D will supply 12.5% of the space occupied by A, B and C.

The result is that A will pay tax on 50% of the fair market value of the rent to B, on 25% of the fair market value of the rent to C and on 12.5% of the fair market value of the rent to D. A "owns" the remaining 12.5% and is not required to pay tax on this portion.

B must pay A and D tax based on 12.5% of the fair market value of the rent for the space it occupies in the building and must pay C tax based on 25% of the fair market value of the rent for the space it occupies. B "owns" the remaining 50% and is not required to pay tax on this portion. B may also have to self-assess tax on 50% of the value of the space it occupies since it has changed the use of the space from commercial activities to exempt activities (e.g., the supply of financial services).

C must pay tax based on 50% of the fair market value of the rent to B and on 12.5% of the fair market value of the rent to A and D. C "owns" the remaining 25% and is not required to pay tax on this portion.

D must pay tax based on 50% of the fair market value of the rent to B, on 25% of the fair market value of the rent to C and on 12.5% of the fair market value of the rent to A. D "owns" the remaining 12.5% and is not required to pay tax on this portion.

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