Skip Ribbon Commands
Skip to main content

Joint Ventures – Part II – Eligible Activities and GST / HST


In Part I of this blog series , we outlined the concept of a joint venture and how the GST / HST accounting can be simplified through the use of an operator election. It’s worth repeating that a joint venture is an arrangement whereby two or more persons work together in a limited and defined business undertaking. The expenses and revenues in this arrangement will be distributed in mutually agreed portions. The arrangement is not that of a partnership, trust, corporation or other such person.

The goal of electing an operator would be to have one person in the joint venture perform all the net tax accounting as opposed to the participants in a joint venture reporting their proportionate share. This is generally much simpler, cleaner and involves less administration. Problems are created only when the joint venture is not an eligible activity and / or an ineligible person is elected to be the operator.

In this post (Part II), we will outline what types of joint venture activities qualify for the use of an operator election. In Part III, we will outline who can be considered an operator. These are areas where the Canada Revenue Agency (CRA) is spending a considerable amount of focus auditing.

What is prescribed?

In the beginning, the only non-prescribed activity that was eligible for the operator election was the exploration or exploitation of mineral deposits. This was specifically set out in the legislation as it was targeted directly at oil, gas and mining operations. Many other business activities also looked for the ability to make this same election and as a result, another 15 activities have been prescribed.

These additional activities were administratively allowed for more than 20 years until the Regulations were enacted. During this time, this created a lot of uncertainty whenever a GST audit was underway as to whether the auditor would allow the operator to account for the GST / HST or force it back up to the participants to account for it. There were many audits that rejected the operator accounting for the GST / HST.

The following is the prescribed list:

  • Real estate construction and management
  • Marketing by the operator of the JV’s output (must be an eligible activity)
  • Transportation of natural gas liquids by means of a pipeline
  • Operation of a facility that is used to generate electricity
  • Operation of a transmission line that is use to transmit electrical power
  • Refinement of the material from the exploration / exploitation of a timber resource, including the marketing activity
  • Production of a fertilizer and its marketing
  • Disposal of waste, including the collection / transportation of waste that is a furtherance of that disposal
  • Exercise of rights / privileges, or performance of duties/obligations of ownership of an interest in an animal for the purposes of deriving revenue from prizewinning, stud service fees for sale
  • Maintenance of a road (but not one that is an exempt supply)
  • Operation and maintenance of the North Warning System
  • Operation of a farming business (as determined for Income Tax purposes)
  • Production of liquid methanol from natural gas
  • Generation and recording of seismic data
  • Operation of a lumber, plywood, shake and shingle, pulp, paper or similar wood processing facility

To be clear, not all activities will qualify for use of the joint venture operator election. While a business relationship may be formed as a joint venture, this does not mean an operator can be elected. If the operator election cannot be used, all of the revenue, expenses and GST / HST must be distributed to the participants to track and report according to their allocation. There are a lot of corners to turn in this process.

Theoretically, if a joint venture has both qualifying and non-qualifying activities, only those qualifying activities would be eligible for the operator to account for use of the joint venture election. All other activities would need to have the GST / HST accounted for by the participants as opposed to the operator. CRA is watching out for mixed activities as well. This may not be a common issue in many joint ventures, but does add more risks as business shifts into activities the joint venture did not initially set out to undertake. The prescribed activities are worded specifically to focus on the output and / or furtherance of the joint venture. This is an output-based determination.

The Regulations are specific in stating that certain non-residential real property joint ventures will not be considered a prescribed activity. This is specific to preclude a participant or someone related to the participant from being able to use the operator election if they are able to gain a benefit. In other words, if by using the election the parties are able to avoid a GST / HST cost, this type of activity is not eligible for the use of the election.


As joint ventures are becoming a popular business structure in many sectors, we are seeing the CRA challenge many of the operations. While GST / HST considerations are not the driving force behind most business operations, GST / HST can come to the forefront quickly if the CRA believes the application is offside. It is worth the effort to start planning now and have a sound filing position before the joint venture gets underway. Trying to make it fit into the rules a few years down the road can sometimes end up with pretty costly results. Need our guidance?

The GST / HST audit activity is aggressive in most sectors these days. There seems to be a strong focus on businesses that were previously considered benign in the risk factor at the CRA.

MNP’s experienced group of Indirect Tax Specialists can answer your questions and address any concerns you may have. Should you require assistance, please contact a member of our Indirect Tax Team for assistance.

Next time: Part III – Who can be an Operator in a Joint Venture?

SUMMARY: Learn what types of activities qualify for the use of an operator election in a joint venture .