1991 CPTS ROUNDTABLE
QUESTION
12. Under generally accepted accounting principles, a corporation may account for an investment in a joint venture by the equity or proportionate consolidation methods, depending on the circumstances. However, subsection 181(3) specifically precludes the use of these methods for purposes of determining the carrying value of a corporation's assets and taxable capital, among other things. This suggests that the corporation's share of the liabilities and equity reflected in the books of the joint venture would only be included in the taxable capital of the corporation to the extent that the joint venture is financed by the venturers and such debt is shown in each venturer's financial statements.
Can Revenue Canada provide its interpretation of the above scenario with reasons?
ANSWER
12. It is not the joint venture but rather the joint venturers which own the property of the joint venture and are liable for the debts of the joint venture. If a venturer corporation is liable for any indebtedness related to a joint venture, the full amount of that indebtedness would be included in the calculation of the venturer corporation's taxable capital.
Earnings of the joint venture would be included in the venture corporation's capital on the same basis that they are reported for purposes of Part I of the Act.
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