Partnerships - Determining the Existence of a Partnership

GST/HST Memorandum 14-9-1
March 2025

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Tax Act (ETA). The information in this publication does not replace the law found in the ETA and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the ETA or relevant regulation, or call GST/HST Rulings at 1‑800‑959‑8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. The GST/HST rates are those that were in effect at the time of publishing. For the list of all applicable GST/HST rates (current and historic), go to GST/HST calculator (and rates).

If you are uncertain as to whether a supply is made in a participating province, refer to GST/HST Memorandum 3-3-2, Place of Supply in a Province – Overview.

Table of Contents

• Overview
• Factors to assist in determining whether a partnership exists
  • Carrying on a business
  • In common
  • With a view to profit
  • The partnership agreement
  • Cessation of a partnership
• Types of partnerships
  • General partnerships
  • Limited partnerships
  • Investment limited partnerships
  • Limited liability partnerships
• Relationships that are not partnerships

Overview

1. Determining whether a partnership exists in a particular case is important because the definition of person in subsection 123(1) includes a partnership.

2. It is also necessary to determine whether a partnership exists because other types of relationships and arrangements have characteristics that are similar to partnerships. These other types of relationships and arrangements are not partnerships for GST/HST purposes and are briefly described in paragraphs 69 to 88 of this memorandum.

3. A partnership may operate in many industries including services, retail, mining, real estate development, manufacturing and agricultural industries. A partnership may be engaged in one or more ongoing businesses which involve an indefinite number of distinct undertakings.

4. The term partnership is not defined in the ETA. The question of whether a partnership exists is a question of mixed fact and law and must be determined according to the law governing partnerships that applies in the relevant province or territory (for purposes of this memorandum, we refer to this as the partnership law), which comprises the relevant provisions of common law and provincial statutory law, or in the case of Quebec, the Civil Code of Québec.

5. Because the existence of a partnership is determined by law not administered by the Canada Revenue Agency (CRA) and is a determination of fact and law, the CRA generally cannot rule on the existence of a partnership for GST/HST purposes. Rather, this memorandum is intended to provide a summary of partnership law, relevant jurisprudence and other authoritative guidance as recognized by the CRA, to assist parties in making their own determinations.

6. The reference to partnership in the ETA and in this memorandum is an inclusive reference to all three main forms of partnership (that is, general partnerships, limited partnerships and limited liability partnerships as discussed in paragraphs 55 to 68 of this memorandum), unless otherwise noted. The terms partner and member are referenced in various sections of the ETA. These two terms are used interchangeably in this memorandum, whether a partner of a partnership or a member of a partnership.

7. Partnership law generally refers to the persons who have entered into partnership with one another to be called, collectively, a firm and the name under which their business is carried on is called the firm name.

8. A partnership can exist between two or more individuals, two or more corporations and between individuals and corporations. In addition, a partnership can exist between two or more other partnerships. A trust can also be a member of a partnership in certain provinces.

9. Under partnership law, a corporation is not a partnership. It is generally understood that the structure of a partnership differs from the structure of a corporation in that a corporation is an entity owned by one or more persons who are shareholders where the corporation has issued shares, whereas a partnership is a relationship in which two or more persons (members) carry on a business together. Generally, a corporation’s shareholders are not directly liable for the company’s debt or legal obligations. In contrast, in a partnership the members are held directly liable for debts and legal responsibilities with certain distinctions between general partners and limited partners. Generally, the rights and liabilities of a partnership are the rights and obligations of its members and are enforceable by and against the members as separate persons.

10. Certain provincial statutes, for example, Ontario’s Business Names Act, paragraphs 21(2) and (3) of Quebec’s Act respecting the legal publicity of enterprises or New Brunswick’s Partnerships and Business Names Registration Act, may require members of a partnership to register their partnership name and file a certificate of partnership.

11. Under partnership law, a partnership is not recognized as a separate legal person distinct from its members. It is the members of a partnership who are the persons who carry on the business of the partnership.

12. For income tax purposes, any profits or losses of the business carried on by the partnership are generally attributed or passed through to the members of the partnership, who each account for their share of the partnership income or losses separately.

13. Despite the above flow-through to partnership members for other purposes, for GST/HST purposes, a partnership is treated as a separate person from its members. The inclusion of a partnership in the definition of person in subsection 123(1), provides for a partnership to be treated as if it were a legal entity. Consequently, for purposes of the GST/HST, the partnership is the reporting entity for the business carried on in partnership. In addition, there are GST/HST consequences that apply to certain transactions involving partnerships and their members.

14. The treatment of a partnership for GST/HST purposes differs from the treatment of the partnership for income tax purposes. As the partnership is a person, it carries on the activities of the partnership and is obligated to report and remit any GST/HST liabilities in respect of those activities.

15. While the treatment of a partnership as a separate person from its members for GST/HST purposes represents a deviation from partnership law, the CRA relies on the relevant partnership law applicable in the province or territory in which the partnership operates to determine the existence of a partnership and the rights and obligations of the members of the partnership. Also, when a partnership is recognized for income tax purposes, it will be treated as one for GST/HST purposes, and so the income tax considerations are relevant for GST/HST purposes as well.

Factors to assist in determining whether a partnership exists

16. The question of whether a partnership exists is a question of mixed fact and law.^{Footnote 1}

17. In the common law provinces, a partnership is a relationship that exists between two or more persons who join together to carry on a business in common with a view to sharing the profits of the business. A partnership may arise by verbal or written agreement or by the conduct of the parties.

18. In the Civil Code of Québec, under Article 2186, “a contract of partnership is a contract by which the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge, or activities and to share among themselves any resulting pecuniary profits”.

19. As noted above, it is often relevant to consider the income tax treatment to determine whether an arrangement is a partnership. Although partnerships are not defined as taxable entities under the Income Tax Act (ITA), there are some special rules under the ITA that apply in the case of certain transactions involving partnerships and their members. Income Tax Folio S4-F16-C1, What is a Partnership?, outlines factors that are relevant to determining the existence of a partnership. This GST/HST memorandum outlines further factors, in addition to those outlined in the Income Tax Folio, that are relevant for GST/HST purposes.

20. Income Tax Folio S4-F16-C1 notes that the Supreme Court of Canada decisions in Continental Bank Leasing Corp. v. Canada, [1998] 2 SCR 298, 98 DTC 6505, Backman v. Canada, [2001] 1 SCR 367, 2001 DTC 5149, and Spire Freezers Ltd. v. Canada, [2001] 1 SCR 391, 2001 DTC 5158, confirmed that the existence of a partnership must be determined by reference to the relevant partnership law of the province or territory and this is the case even when dealing with a partnership established in a jurisdiction outside Canada. The documentary evidence (for example, partnership agreement) and the surrounding facts, including the actual actions and activities undertaken by the parties, must demonstrate an intention to carry on business in common with a view to profit.

21. The courts have generally established that when dealing with any issue involving a partnership, it is necessary to examine the relationship between the persons, having regard to the relevant provincial statute and jurisprudence to the partnership agreement as well as the intention of the persons, as evidenced by their conduct and the manner in which they deal with each other and with other parties. Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all relevant circumstances.

22. As summarized by the Supreme Court in Continental Bank Leasing Corp, before a partnership can be said to exist in the common law provinces, two or more persons must demonstrate that they have a relationship wherein they are:

• carrying on a business
• doing so in common
• doing so with a view to profit

23. A separate test to determine whether a contract of partnership exists in Quebec based on civil law is described in paragraph 18 of this memorandum.

Carrying on a business

24. Since the definition of partnership in partnership law requires the carrying on of a business, it follows that a partnership cannot exist before the business is commenced, subject to the special rules that apply to limited liability partnerships (LLPs), which are described in paragraphs 66 to 68 of this memorandum.

25. Therefore, a partnership commences when the persons embark on the business on which they have agreed to, that is, when they start to carry on an activity or undertaking together with the object of making a profit. It is the actual carrying on of the activity by the persons who have purported to have entered into a partnership, and not a mere agreement to carry on a business, which indicates whether there is a contemplated partnership or an actual partnership.

26. Partnership law generally provides that a business includes every trade, occupation, and profession.

27. In addition, an activity that might not ordinarily be classified as a business (such as buying, selling and holding investments) may be considered as such if it is carried on as a business endeavour. For example, partnerships carrying on such activity are generally formed as limited partnerships and include collective investment schemes, which are defined for GST/HST purposes as investment limited partnerships and are noted in paragraphs 63 to 65 of this memorandum.

28. A business can combine a number of elements and can comprise a number of different and unrelated activities or be carried on in a number of separate divisions.

29. As noted in the Supreme Court of Canada decisions, the mere fact that persons describe themselves as partners in business or file a declaration of partnership does not prevail over the actual facts of a situation. For example, the fact that a partnership is formally registered under partnership law does not necessarily mean that a partnership (or business) actually exists. In addition, express declarations against the existence of a partnership will not be determinative if the facts indicate otherwise.

30. When determining whether a partnership has been established in a particular case, one should consider the intention of the parties and the manner in which they deal with each other and with third parties. Mutual consent and the intention to act in partnership must be supported by the conduct of the persons who are purporting to be carrying on business in partnership.

31. It may be necessary to demonstrate that there is a sufficient element of continuity before a business will be held to exist. For example, it is generally understood that the business must actually be carried on for more than a brief moment in time and not be disposed of almost as soon as an alleged partnership is formed.

32. Finally, the courts have also determined that the activities of the business are what the members do collectively. This will often be described in the partnership agreement. Something done by a member in their individual capacity and not as a member of the partnership does not form part of the partnership’s business.

33. The type and extent of a person’s involvement in the business is generally relevant in determining whether that person is a partner. However, under partnership law, a limited partner in a limited partnership is not an agent of the partnership, and as such, generally has no authority to bind a partnership and does not participate in the management of the partnership. Limited partners in a limited partnership are subject to special rules under the relevant partnership law and are discussed further in paragraphs 59 to 62 of this memorandum.

34. In addition, under partnership law, all members are jointly and severally, or solidarily, liable for the debts of the business of the partnership, with the exception of limited partners in a limited partnership and limited liability partners in an LLP.

In common

35. A business must be carried on in common by all members. That is, each member’s activity in the business must be engaged in on or on behalf of the other members toward a common goal and the business must be carried on for the benefit of the members collectively.

36. In determining whether a business is carried on in common, the common purpose of the partnership is usually found in the partnership agreement that sets out the respective rights and obligations of the members. In this way, two or more persons must be carrying on a business together for their common benefit.

37. Related persons are able to form partnerships. Spouses and civil partners may enter into a partnership together. However, the courts have generally not accepted the existence of a partnership in such cases without clear indication that a partnership exists at law. A partnership can exist between an individual and a corporation. However, in circumstances where an individual has partnered with a corporation wherein the individual is also the sole or controlling shareholder and director of the corporation, it is often unclear if a partnership can exist in respect of their activity.

38. Under partnership law, the property of a partnership must be held and used by the members exclusively for the purposes of the partnership and in accordance with the partnership agreement. Once a member brings an asset into the partnership by way of a capital contribution, the asset becomes partnership property and the member ceases to enjoy any beneficial interest in the asset that is different to that of the other members.

39. Given that for GST/HST purposes a partnership exists as a separate person from its members, a person who is a member of a partnership can act in a personal, separate capacity in making supplies to the partnership. Where a person who is a member makes a supply of property or services to the partnership, that is not a supply that is made between the members.

With a view to profit

40. In a valid partnership under partnership law, the members share in the profits (and losses) determined at the level of the partnership. The ordinary commercial meaning of profit is an increase in the value of assets or revenue generated in excess of expenses.

41. The shared intention to make a profit, even if a profit is not actually realized, is an essential element of a legal partnership relationship. The profits must be intended to be realized for the common benefit of all members of the partnership. Determining whether a business is being carried on in common with a view to profit requires a review of the intentions of the parties and the provisions of the partnership agreement governing the distribution of profits. Profits are generally shared equally in proportion to membership interest.

42. If there is no intention of earning profit from the activity that is carried on in common by the parties, then there is no valid partnership, even if one or more of the parties might be considered to otherwise profit from carrying on that activity in a partnership in the sense of deriving some other benefit, such as a tax benefit.

43. In addition, under partnership law, if a person is to be paid a salary or other remuneration rather than receive a share of the profits from the business activity in question based on the interest that the person holds in the partnership, then that person is not acting in partnership with the other parties engaged in that activity. For example, if one member is actually supplying consultancy or other services to the partnership or charges the other members with any sum for compensation, whether a fixed or variable fee based on profits, commission or otherwise on account of their efforts in conducting the partnership business, then that member is carrying on a separate business independent of the partnership.

The partnership agreement

44. Partnership agreements describe what each member contributes to the business, how the profits and losses are allocated, and other details about membership and management. Partnership agreements set out the rights and obligations of the members. The partnership agreement typically includes interest percentages, which are based on the value of each member’s contribution to the partnership business (monetary or otherwise) and often correlate to profit and loss allocations and managerial authority.

45. Under partnership law, a written agreement is necessary for limited partnerships and LLPs. As noted in paragraph 60 of this memorandum, these partnerships must register with the appropriate government authority under provincial statute.

46. A partnership agreement generally provides a structure for operating the partnership, and typically includes but is not limited to:

• the name of each member and, for limited partnerships, the name of each general and limited partner
• a description of the nature of the partnership’s business
• the commencement date and duration of the partnership
• the identification of the assets that constitute partnership property held by the members which are to be used by the partnership
• the fact as to whether goodwill is to be accounted for as a partnership asset
• the capital contributions to be made by each member and each member’s interest in the capital of the partnership, expressed in money, or if a person contributes property, the value of the property expressed in money
• the powers and duties of members, including a description of how the partnership will be managed and controlled, including the right conferred on one or more of the members to manage the whole or part of the partnership’s business to the exclusion of the other members
• the manner in which profits and losses are to be shared
• the privileges, if any, of each member for drawing on accounts of the partnership
• the provisions governing the maintenance of books and records
• the manner of dissolving the partnership and post-dissolution obligations
• the settlement procedures with respect to a retired, deceased, or expelled member’s share of capital and profits and any work in progress that the member had contributed towards
• the manner of settling disputes between members
• the rules for governing the circumstances in which a member may or must leave the partnership

47. The partnership agreement may be evidenced by a formal written document or it may be inferred from the way in which the parties have acted. For example, Article 2250 of the Civil Code of Québec provides that a contract by which an undeclared partnership is constituted may be written or verbal. It may also arise as a result of facts clearly indicating the intention to form an undeclared partnership.

48. While the absence of a written agreement does not necessarily mean that there is no partnership, the courts have determined that the existence of a written agreement is not necessarily determinative that there is a partnership.

49. If a written partnership agreement is prepared, but the facts show that the agreement was never acted upon, no partnership will be recognized at law. If persons sign an agreement to become partners in a business on a future day, they will not be regarded as carrying on business in partnership until the persons actually commence to carry on the business on that future day. Thus, if an agreement to form a partnership has not been executed, no partnership will be created until the agreement is executed.

50. A written agreement that deems a partnership to have begun on a day earlier than its actual commencement will not alter the nature of the transactions that occurred and the liabilities that arose between the partners and third parties (including the CRA) prior to the actual commencement of the partnership. In that regard, for GST/HST purposes, the CRA does not consider any actions of a partner carried out prior to the actual commencement of the partnership to be made in its capacity as a partner of the partnership.

51. Similarly, the amendment of a written agreement which seeks to have a retroactive effect, such as retroactively altering a partner’s entitlement to income after the fact, may be challenged by the CRA if the purpose of the amendment is to obtain a tax relief benefit.

Cessation of a partnership

52. Whether a partnership would, in the absence of any deeming rule in the ETA, cease to exist at any time is a question of mixed fact and law that can only be resolved after a full review of all of the facts, the intention of the parties at that time, the relevant partnership law and the terms and conditions of the partnership agreement.

53. Some examples of events that may result in a partnership ceasing to exist for purposes of the relevant partnership law include:

• when the members cease to carry on a business in common and all of the operations of the partnership are discontinued, which could include a situation where the fixed term of a partnership’s existence expires or the activities for which the partnership was formed are terminated (in the absence of a business, no partnership can exist within the meaning of the relevant partnership law)
• when a general partnership is converted to a limited partnership such that the general partnership ceases to exist
• when a change in the members of a partnership is made, such as when a person ceases to be a member or a new person is admitted as a member
• when an event occurs that makes the partnership business illegal
• when a partnership consists of two members and one of the members retires from the partnership or acquires the interest of the other
• when a partnership consists of two corporate members and there is an amalgamation or winding-up that results in a single successor corporation

54. Based on established partnership law, a dissolution of a partnership should be evidenced by a declaration duly registered with the relevant authority and signed by all the members, usually the general partners, in order to be effective with respect to third parties that are not included in the partnership agreement.

Types of partnerships

55. Due to the different rules under partnership law that apply to each type of partnership and the different roles of general and limited partners, the GST/HST rules in the ETA that apply to a particular transaction involving a partnership and a member may depend on the type of partnership in question and whether a member is a general partner or a limited partner.

General partnerships

56. Under partnership law, for partnerships that are structured without any limited partners, typically referred to simply as a general partnership, all the members are general partners. In the absence of an agreement to the contrary, generally the members are equally responsible for the debts of the partnership. Each member is both:

• a principal acting in respect of its own activities
• an agent of the partnership and other members for the purposes of the partnership business

57. For example, when a member receives money belonging to the partnership, the member does so both as a principal for the member and as an agent for the co-members. In addition, as a principal, a member is personally liable to meet the partnership’s debts.

58. Under partnership law, each member of a general partnership has unlimited personal liability for the debts and obligations of the partnership. As an agent, a general partner binds the partnership and the co-members in all matters within the general partner’s authority. Thus, any one member could be obliged to pay all the debts of the general partnership, even if that member did not create any of those debts.

Limited partnerships

59. A limited partnership is a form of partnership with special characteristics. Under partnership law, it consists of one or more general partners who generally are the sole persons authorized to administer and bind the partnership and it has one or more limited partners who are required to make contributions of capital to the partnership in the form of money or property.

60. A partnership becomes a limited partnership only after filing a prescribed declaration with the appropriate government authority under the provincial statute. Otherwise, every limited partner may be considered to be a general partner.

61. A limited partnership is distinguished from general partnerships under partnership law, based on the following three characteristics:

• The limited partners share in the profits and are liable for losses only to the extent of their contributions to the partnership.
• The limited partners generally have no power to bind the partnership in matters within the ordinary scope of the partnership business.
• A limited partner is not liable as a general partner unless, in addition to exercising rights and powers as a limited partner, the limited partner takes part in the control of the business.

62. Generally, the limited partnership carries on business through its general partner, who manages the partnership, has sole control over the partnership property and business, and is the agent of all of the other members for partnership matters as governed by the limited partnership agreement.

Investment limited partnerships

63. The ETA contains special rules specific to an investment limited partnership as defined in subsection 123(1). For purposes of the GST/HST, an investment limited partnership is a specific type of limited partnership where investors pool funds to invest in property consisting primarily of financial instruments where (a) the limited partnership is, or forms part of an arrangement or structure represented or promoted as a hedge fund, investment limited partnership, mutual fund, private equity fund, venture capital fund, or other similar collective investment vehicle, or (b) the total value of all interests in the limited partnership held by listed financial institutions is 50% or more of the total value of all interests in the limited partnership.

64. The investment fund is under the control of a general partner. An investment limited partnership could include limited partnerships in tiered investment fund structures. For example, if the primary purpose of a limited partnership in a tiered partnership structure is to establish and manage a pooled fund that provides investment opportunities to persons through the acquisition of interests in other partnerships, the limited partnership is considered to be, or to be part of, an arrangement or structure that is represented or promoted as a collective investment vehicle. This is the case regardless of the nature of the business of the other partnerships.

65. For further information on the application of the GST/HST to investment limited partnerships, refer to GST/HST Notice 308, GST/HST and Investment Limited Partnerships.

Limited liability partnerships

66. Under partnership law, an LLP is formed when two or more persons enter into a written partnership agreement that designates the partnership as an LLP and states that the applicable provincial partnership statute governs the agreement.

67. LLPs are generally restricted to professions where the governing legislation of the profession expressly permits its members to form an LLP. For example, in Ontario, chartered accountants under the Chartered Professional Accountants of Ontario Act, 2017, and lawyers under the Law Society Act may organize as an LLP.

68. An LLP may be required to register its firm name under the provincial statute applicable to registration of business names.

Relationships that are not partnerships

69. A partnership is distinguished from other types of relationships and arrangements of two or more persons that have a number of characteristics in common with partnerships, such as sharing of profits and expenses and ownership of property.

70. These other types of relationships and arrangements include joint ventures, co-ownership relationships, and fee-sharing and cost-sharing arrangements. These other types of relationships and arrangements are not included in the definition of person in subsection 123(1).

71. Other unincorporated organizations, such as clubs and societies, which do not have as their object the sharing of profits and whose members are not liable for each other’s acts, are not partnerships.

72. In addition, a partnership cannot be a non-profit organization as defined in subsection 123(1). To be a non-profit organization, a person must meet all of the following conditions:

• it was organized solely for non-profit purposes
• it is in fact operated solely for non-profit purposes
• it does not distribute or otherwise make available for the personal benefit of any member any of its income, unless the member is an association that has as its primary purpose and function the promotion of amateur athletics in Canada

73. Partnerships formed under the legislation of other countries may not be partnerships for GST/HST purposes. Income Tax Folio S4-F16-C1, What is a Partnership? notes that in the case of a foreign entity or arrangement, the CRA takes a two-step approach to determine whether the entity or arrangement should be treated as a partnership for Canadian tax law purposes. First, the CRA will determine the characteristics of the foreign business entity or arrangement by reference to the relevant foreign law and the terms of any relevant agreements relating to the entity or arrangement. Second, the CRA will compare the characteristics of the foreign business entity or arrangement to the characteristics of business entities or arrangements under Canadian law in order to see which Canadian entity or arrangement it most fundamentally resembles.

74. For example, legislation in certain jurisdictions of other countries may permit the formation of a partnership having a legal personality distinct from its members, with limited liability for debts and obligations afforded to all members, including the general partner. Further, legislation in certain jurisdictions may permit a person to be admitted to a limited partnership as a general partner or as a limited partner without making a contribution or being obligated to make a contribution or without acquiring an interest in the limited partnership. However, based on provincial partnership law, a person must have an interest that is greater than zero to be a member of the partnership. In these circumstances, it will have to be determined if the foreign entity more fundamentally resembles a partnership arrangement under Canadian law than a corporation, trust, or a “body that is a society, union, club, association, commission, or other organization of any kind” included within the definition of person in subsection 123(1).

75. In addition, legislation in certain jurisdictions may permit the formation of partnerships for a purpose other than carrying on business in common with a view to profit. If the members of a partnership are not carrying on business in common with a view to profit, the arrangement is not a partnership for GST/HST purposes. Instead, the arrangement may be a “body that is a society, union, club, association, commission or other organization of any kind” included within the definition of person in subsection 123(1).

76. Partnership law generally provides that:

• An incorporated company or association is not a partnership.
• A joint tenancy or tenancy in common (ownership of property by two or more persons), jointly-owned property, common property, or part ownership does not, by itself, imply the existence of a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.
• The sharing of profits does not, by itself, create a partnership, regardless of whether or not the persons sharing such profits have a joint or common right or interest in any property from which, or from the use of which, the returns are derived.

77. The second paragraph of Article 2186 of the Civil Code of Québec provides that a contract of association is a contract by which the parties agree to pursue a common goal other than the making of pecuniary profits to be shared among the members of the association. Such an association is not a partnership under the Civil Code of Québec.

78. Therefore, a relationship is not a partnership when constituted under a contract or an agreement by which two or more persons agree to pursue common goals that do not include the earning and sharing of profits from carrying on a business in common.

79. In addition, the receipt of income from the mere holding of property that is owned jointly by two or more persons generally does not constitute a business. Thus, not all activities, whether or not profitable, that are conducted jointly by persons qualify the relationship between those persons as a partnership.

80. In a joint venture, the participants intend to carry on their own separate businesses. The participants combine their resources for a limited purpose, a limited time or both. Whether a joint venture exists is a question of mixed fact and law which must be determined by reference to the law of the particular province or territory.

81. A description of the differences between a joint venture and a partnership is provided in GST/HST Policy Statement P-171R, Distinguishing Between a Joint Venture and a Partnership for Purposes of the Section 273 Joint Venture Election.

82. Partnership law provides that a partnership does not necessarily exist between the co-owners of property. A co-ownership relationship exists between persons where they hold ownership and possession of the same property, usually real property, together in joint tenancy or tenancy in common.

83. The principal feature of a co-ownership arrangement is that the parties each hold a direct interest in the co-owned property, although, in a joint tenancy arrangement, one type of a co-ownership arrangement, the property cannot be sold or mortgaged without the consent of the other joint tenants.

84. The following is a list of some of the factors that distinguish a co-ownership arrangement from a partnership:

• A co-ownership does not necessarily result from an agreement, whereas a partnership is the result of an express or implied agreement.
• Co-ownership does not necessarily involve a sharing of profit or of loss.
• Parties to a co-ownership relationship do not necessarily have an expectation of deriving a profit from the co-ownership, whereas the expectation of profit is an essential element of a partnership.
• A particular co-owner can, without the consent of the other co-owners, transfer the particular co-owner’s interest to a third party, whereas in a partnership, any transfer of a partnership interest generally requires the consent of the other partners.
• Unlike a partnership, each of the owners in a tenancy in common arrangement have the freedom to deal independently with their respective interests in the co-owned property and each of their interests in the property remains separate, such that each co-owner is free to dispose of their own interest in the property.
• Co-owners are not agents of each other in the absence of an express agreement, whereas in a partnership, generally, a member who is not a limited partner is an agent of the partnership and other members as a matter of law with respect to the business carried on by the partnership.
• In the absence of a specific agreement, co-owners generally have no right of recourse in the form of any claim against property that is co-owned, whereas a member of a partnership may recover amounts on a winding-up of a partnership.
• Partnership law provides rules for the dissolution of a partnership, but they do not apply to a co-ownership arrangement.

85. Where co-owners share the profits realized from their joint property, their relationship may appear similar to a partnership. In such a case, having regard to all of the circumstances, it might be assumed that an agreement for a partnership exists. However, if each co-owner merely receives that person’s due share of the gross returns derived from the joint property, no partnership is created.

86. In a cost-sharing arrangement, two or more persons operate their individual businesses from a shared facility and agree to share specific common operating expenses, such as rent, utilities, payroll of certain employees, or the capital or lease costs for certain property.

87. One of the participants of the cost-sharing arrangement may be delegated to act as the agent of the other participants with respect to property and services common to the business of each participant. The cost of the property and services is shared equally or on some agreed-upon proportionate basis. The accounting methods for shared costs varies for each arrangement.

88. Apart from not being a person, a cost-sharing arrangement or fee-sharing arrangement between two or more persons is not, of in itself, a business for GST/HST purposes because it does not include the fundamental factors of a business discussed in paragraphs 24 to 34 of this memorandum.

Further information