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A Change in Canada Revenue Agency’s Joint Venture Administrative Policy


A joint venture is usually an arrangement where two or more parties join in a common undertaking. This is generally involving a single investment, usually of a short- to medium-term nature, and is structured specifically to not be a partnership.

Until recently, the Canada Revenue Agency allowed joint ventures to establish a fiscal period that was different from the fiscal period of the venturers, where the venturers had different fiscal periods and where there was a valid business reason to justify a different fiscal period of the joint venture.

With this administrative policy, it was possible for the venturers to defer income tax. This income tax deferral could be achieved if the joint venture established a fiscal period that ended after the fiscal period of the venturers. For example, if a venturer had a December year-end, the joint venture could chose to have a January year-end. These staggered fiscal periods, combined with the Canada Revenue Agency’s administrative policy, resulted in the joint venturers income being taxed in the following year-end of the venture. As such, an 11 month deferral could be achieved through staggering the year ends of the venture and the joint venture.

A similar tax deferral was available to corporations that were members of certain types of partnerships. Partnership deferral planning was becoming increasingly popular, so the Department of Finance recently introduced rules to significantly reduce the ability to defer taxes through the use of partnerships.

As a result of the 2011 Budget proposals, the Canada Revenue Agency, Technical Interpretation 2011-0403081C6(E), stated that assuming the 2011 Budget proposals are enacted, their administrative policy on joint ventures will no longer be applicable. The change in the Canada Revenue Agency’s joint venture administrative policy reflects the 2011 Budget proposals impact on partnerships.

This change in administrative policy will result in venturers potentially being required to include the income for up to two fiscal year ends of the joint venture on one tax return. A similar result exists for partnerships and the 2011 Budget proposals provide transitional relief to members of partnerships who are required report their partnership income based on the proposed rules. These transitional rules will allow the corporate partner to gradually report this additional income over a 5 year period.

In the above noted Technical Interpretation, the Canada Revenue Agency noted that joint venture participants, who have relied upon the administrative policy in previous years, will receive transitional relief consistent with the relief provided to members of a partnership. As such, it is expected that any additional income resulting from this change in the administrative policy will gradually be taxed over the next five year (at 15%, 20%, 20%, 20% and 25% respectively, from 2012 to 2016).

The Canada Revenue Agency’s treatment of joint ventures has been based upon administrative policy, so the possibility exists that their treatment of joint ventures going forward, based upon the 2011 Budget proposals, may not be completely parallel the proposed partnership rules.

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