| 24(1) | File No. 5-9226 (900009) |
| J.D. Brooks | |
| (613) 957-2097 | |
| 19(1) |
May 22, 1990
Dear Sirs:
Re: Joint Ventures
We are writing in response to your letter of November 1, 1989 in which you requested our opinions regarding the application of the Income Tax Act (the "Act") to joint ventures. In reply to your queries, we offer the following commentary.
As you indicated, Revenue Canada, Taxation has adopted the administrative position that it will normally allow a joint venture to establish its own fiscal period where the participants have different fiscal periods or where valid business reasons justify the establishment of a fiscal period. No restriction was placed on this administrative position that it would apply only where the property held by the joint venture was capital property.
Whether property is owned by all of the joint venturers or by one or more specific joint venturers depends on the facts in a particular case. Where all the members of a joint venture own undivided interests in assets used in the same joint venture, those assets would be treated as if they were owned by the joint venture and the reporting of the proceeds of disposition of one of those assets would be based on the fiscal year-end permitted for the joint venture provided that at least one significant asset remained in the joint venture. However, where the principal property of a joint venture has been disposed of and replaced with a mortgage or note receivable, it is the Department's opinion that the passive activities involved would not generally be sufficient to constitute a joint venture. Accordingly, it would not be appropriate to continue to report income and gains based on the previously established year-end.
On the other hand, with respect to property owned by a joint venturer, the reporting of the proceeds of disposition of that property would be based on the taxation year of the joint venturer notwithstanding that income or loss from the joint venture's operations will be reported on the basis of the fiscal period of the joint venture.
The above-mentioned method of reporting income from joint ventures is meant to facilitate reporting for tax purposes. Where a taxpayer was not aware of our approach and reported dispositions in the taxation years in which the dispositions occurred, the Department generally would not resist a taxpayer adopting our approach for subsequent dispositions. However, once a method of reporting the dispositions has been established, that method should be used more consistently.
Our comments in this letter represent our general views with respect to the subject matter of your letter. The facts of a particular situation may lead to a different conclusion. Our comments in this letter are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R dated December 18, 1978, are not binding on the Department.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch