Dear Sirs:
This is in reply to your letter dated August 20, 1991 with respect to the treatment of joint ventures for the purposes of section 181 of the Income Tax Act (the "Act").
As you have noted paragraph 181(3)(a) of the Act denies the use of either the equity or consolidation methods for the purpose of determining the carrying value of the assets or any other amount of a corporation relevant to the calculation of an amount pursuant to Part I.3 of the Act.
The position of the Department with respect to joint ventures is that they are formed pursuant to a contractual agreement between two or more persons and are not, in and of themselves, a separate person. Title to property used in a joint venture rests in one or more of the joint venturers and it is a question of fact whether the property is owned by all of the joint venturers or by one or more specific joint venturers.
For the purposes of Part I.3, the Department considers that a joint venturer must include in the calculation of its capital and investment allowance such amounts reflecting its participation in the joint venture as are appropriate in the circumstances. For example, if the joint venturer is singularly liable for any indebtedness related to the joint venture, the full amount of that indebtedness would be included in the capital of that corporation to the extent required by the relevant provisions of Part I.3 of the Act.
Alternatively, if the corporate joint venturer is jointly liable for any indebtedness of the joint venture only its appropriate portion of the indebtedness would be so included. The amount of any indebtedness for which any particular joint venturer is liable would not necessarily be dependent upon any income or profit sharing arrangement among the participants. Similarly, the earnings of the joint venture will be included in the calculation of the capital of the corporate joint venturer on the same basis as it is reported for purposes of Part I of the Act.
The Department's position with respect to a joint venture establishing its own fiscal period is discussed in response to Question 15 of the 1989 Corporate Management Tax Conference Revenue Canada Panel. Where a joint venture has been permitted to establish its own fiscal period, each participant of that venture must include in income its share of the joint venture profits for the fiscal period of the joint venture which ended in its taxation year.
While we hope our comments are of assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate