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GST/HST — input tax credits for joint venture investment

A company invested in a joint venture of co-owning vacant land, which the co-owners held with the intention of eventually developing or selling it. (No "joint venture election" was made for GST/HST purposes.) Nothing happened for many years.

After 25 years, the co-owners sold the property. The company, as one of the co-owners, claimed input tax credits (ITCs) for its portion of the HST on real estate commissions and other fees relating to the sale.

Because the company claimed a GST/HST refund, it was audited by the CRA. The Refund Integrity Auditor decided that the company was supplying exempt financial services, and proposed to deny all ITCs.

I wrote to the auditor to explain that an interest in real property is "real property" as defined, and that the company's sale of its interest was a taxable supply, so ITCs could be claimed on the inputs to making the sale. The auditor was mistaken in thinking that a joint venture investment is a "financial instrument" (as a partnership investment is).

I insisted that the auditor refer my letter to his GST/HST Technical Advisor to get proper advice. He did, and quickly allowed the ITCs.

Problem solved and ITCs allowed!

(2017)