Partnerships - Application of subsection 272.1(1) of the Excise Tax Act
GST/HST Policy Statement P-244
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.
Date of Issue: August 9, 2004
Subject: Partnerships – Application of subsection 272.1(1) of the Excise Tax Act
Legislative Reference: Subsection 272.1(1) of the Excise Tax Act (the Act)
National Coding System File Number: 11635-8
Effective Date: April 24, 1996
Issue and decision
The issue is the interpretation of the phrase “anything done by a person as a member of a partnership” in subsection 272.1(1) of the Excise Tax Act (the Act). Specifically the determination of whether something is done by a general partner as a member of a partnership, or something is done by a general partner for its own purposes and supplied to a partnership of which it is a member.
The determination of whether a general partner does something as a member of a partnership for the purposes of subsection 272.1(1) depends on the particular provincial partnership law and the facts of a particular situation. Factors to consider include, but are not limited to, the following.
The terms of the partnership agreement
If there is a written partnership agreement, what are its terms? For example, is the partner clearly responsible for taking the action under the terms of the agreement? Is the partner’s conduct consistent with the terms of the agreement?
If there is no written partnership agreement, does the conduct of the parties imply a partnership agreement? Do the facts indicate that there was agreement among the partners that the partner was responsible for taking the action?
Does the partner receive separate consideration for a supply of property or a service provided to the partnership under the agreement?
The nature of the action taken by the partner
Does the action taken by the partner relate to the purpose of the partnership’s business?
Who is liable for the action of the partner?
Did the partner acquire property or a service on its own account for use in the partnership’s activities such that subsection 272.1(2) of the Act applies (e.g. is the partnership deemed not to have acquired the property or service)?
Did the partner acquire property or a service on its own account and did the partnership reimburse the partner such that section 175 of the Act applies (e.g. is the partnership deemed to have received a supply of the property or a service)?
Did the partner supply property or a service to the partnership such that subsection 272.1(3) of the Act applies (i.e. is the property or a service supplied by the partner to the partnership otherwise than in the course of the partnership’s activities)?
The partner’s ordinary course of conduct
Is the partner doing the activity only for the partnership? Is the partner engaged in a separate business?
Examples
Example No. 1
Facts
- A limited partnership was created to construct and operate a retirement residence in Ontario.
- It was agreed under the written limited partnership agreement that the general partner, A Co., would be the sole manager of the retirement residence. Under the limited partnership agreement A Co. will be paid x% of the partnership’s profits.
- A Co.’s conduct in performing the management services is consistent with the related terms of the written limited partnership agreement.
- A Co. does not provide services to any other persons.
Issue
Does subsection 272.1(1) of the Act apply to the management services performed by A Co. so that they are deemed to have been done by the limited partnership?
Comments
The general partner is clearly responsible for managing the residence under the terms of the written limited partnership agreement and does not receive any separate consideration for doing so. Managing the residence is directly related to the business purpose of the partnership. A Co. only manages the retirement residence for the limited partnership. Generally subsection 272.1(1) would apply to the management services performed by A Co. Where subsection 272.1(1) applies, the services would be deemed to be done by the partnership so there would be no supply of the management services from the partner to the partnership for GST/HST purposes.
Example No. 2
Facts
- D Co. is engaged in a manufacturing business and is a partner in a trucking business. D Co. is registered for GST/HST purposes.
- Under the written partnership agreement, D Co. contributes to the partnership and receives partnership profits in an equal proportion with the other partners. Also under the partnership agreement, D Co. provides certain property and services for the partnership’s business and the partnership reimburses D Co. for the cost of the inputs acquired for consumption or use in the partnership’s business.
- D Co. acquires property and services for consumption and use in the partnership’s business. D Co.’s conduct in providing the property and services and requesting reimbursement of its costs is consistent with the related terms of the written partnership agreement.
- D Co. does not claim any ITCs for the GST/HST paid on the property or services it acquired for consumption or use in the partnership’s activities.
Issue
Does subsection 272.1(2) of the Act apply to the property and services acquired by D Co.?
Comments
Where D Co. acquires property or a service for consumption or use in the partnership’s activities but on its own account, does not claim any ITCs for the GST/HST paid on those inputs, and is reimbursed by the partnership, subsection 272.1(2) and section 175 of the Act would apply. As a result of section 175, the partnership is deemed to have received a supply of the property or a service and to have paid GST/HST according to the formula in paragraph 175(1)(c) of the Act, and the consumption or use of the property or service by D Co. in the partnership’s activities is deemed to be consumption or use by the partnership and not by D Co.
Example No. 3
Facts
- A partnership is engaged exclusively in a logging business.
- One of the partners, Mr. T, is an accountant who operates an accounting business and is registered for GST/HST purposes.
- Under the written partnership agreement, Mr. T contributes to the partnership and receives partnership profits in an equal proportion with the other partners. Also under the partnership agreement, Mr. T provides accounting services to the partnership and is paid a monthly fee based on his normal rate per hour for those services.
- Mr T’s conduct in providing the accounting services and invoicing for those services is consistent with the terms of the written partnership agreement.
Issue
Does subsection 272.1(3) of the Act apply to the accounting services provided by Mr. T to the partnership?
Comments
The accounting services are included in the written partnership agreement, but Mr. T is receiving a separate fee for the accounting services, and he is carrying on an accounting business as a separate business. Mr. T is providing the accounting services in the course of his accounting business which is otherwise than in the course of the partnership’s activities. Subsection 272.1(3) applies to the accounting services supplied by Mr. T to the partnership and GST/HST applies to the consideration for the supply.
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