GST/HST and QST joint venture election: Beware of unintended consequences

May 9, 2024 | Marie-Hélène Tremblay

Making the GST/HST and QST joint venture election is very popular with Canadian taxpayers. This election allows the co-venturers of a joint venture, when the cumulative requirements are met, to appoint a single person (the “operator”) to be in charge of reporting and remittance obligations. An operator can collect and remit the GST/HST and QST , and claim any input tax credits (“ITCs”) and input tax refunds (“ITRs”), on behalf of all co-venturers. This way, each co-venturer is not required to collect and remit, in accordance with their proportionate interest in the joint venture, the GST/HST and QST or to proportionately claim ITCs and ITRs in connection with the joint venture’s operations as would normally be the case. With this tax election, managing the GST/HST and QST compliance requirements is easier and more efficient, which explains why most joint ventures make it.

While this is an obvious choice for many joint ventures, there may be unintended consequences for some taxpayers. Such a situation was discussed in the decision in Gestions Adlexco ltée (“Adlexco”) c. Agence du revenu du Québec, 2023 QCCQ 5625, rendered by the Court of Québec in August of 2023. In that decision, Adlexco was the operator of a joint venture that made the GST/HST and QST election. The co-venturers of this joint venture were Sasco at 60% and Abco at 40%. Sasco was a “large business” for the purposes of the Excise Tax Act (Canada) and the Act respecting the Québec sales tax (the “QSTA”) whereas Abco was not. According to the QSTA, certain ITRs are limited for large businesses. Where expenses subject to such limitations were incurred by the joint venture, Adlexco claimed limited ITRs on a portion representing 60% of the expenses and full ITRs on a portion representing 40% of the expenses. The Agence du revenu du Québec challenged the position adopted by Adlexco stating that the joint venture election had the effect of considering Adlexco to be a large business.

The Court of Québec rendered a decision confirming that, in the case at bar, Sasco’s large business status had contaminated the entire joint venture, resulting in Adlexco also being deemed a large business. As a result, Adlexco was limited in the claim of certain ITRs under the QSTA on all acquisitions made in connection with the joint venture.

While a joint venture election remains the best option in most cases, a review of the impacts of this choice should always be made by a tax specialist.

For further information on the impacts of making a GST/HST and QST joint venture election, please contact a member of Miller Thomson LLP’s Sales, Commodity and Indirect Tax Team.


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