Determining the existence of a partnership is significant due to the inclusion of partnerships in the definition of "person" under subsection 123(1) of the Excise Tax Act (ETA). Notably, other types of relationships, such as joint ventures or co-ownership, while sharing some characteristics with partnerships, do not qualify as partnerships for GST/HST purposes. The ETA does not explicitly define "partnership," thus leaving it to the applicable provincial law, which encompasses common law and statutory provisions. The Canada Revenue Agency (CRA) cannot adjudicate on partnership existence for GST/HST due to these determinations being primarily legal and factual in nature. However, this memorandum aims to outline partnership law and relevant judicial precedents that can help individuals identify partnerships. The memorandum refers interchangeably to "partner" and "member," covering the three primary types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

Under partnership law, individuals who form a partnership collectively constitute a firm that conducts business under a designated firm name. Partnerships can involve a mix of individuals and corporations and sometimes even a mix of partnerships, with particular provincial statutes mandating members to register collectively. Unlike corporations—which are regarded as distinct legal entities with limited liability—partnerships do not possess such separateness as they are mediated through their members who are individually liable for the debts and actions of the partnership. Specific legislations may impose registration requirements on partners, emphasizing that a partnership does not exist as a separate legal person from its members, with profits and losses typically ascribed to members individually for income tax purposes.

Conversely, for GST/HST calculations, partnerships are treated as separate entities, responsible for their tax obligations independently, leading to differing treatment under tax laws. A partnership's existence relies on a mixed assessment of legal interpretation, factual conditions, and shared business operations intended for profit.

According to the Supreme Court, for a partnership to be recognized in the common law provinces, it is essential that two or more individuals establish a relationship characterized by:

· conducting a business,

· engaging in it collectively (in common),

· and pursuing profit.

In addition, the partnership agreement and the cessation of a partnership were also established by the CRA as factors assisting in determining whether a partnership exists, although the absence of a written contract does not automatically negate a partnership's existence.

Cessation of partnerships can result from various factors including discontinuation of shared business activities or membership alterations, necessitating formal declarations for dissolution to be recognized legally. Furthermore, different partnership types, such as general, limited, and investment partnerships, hold particular attributes affecting liability, operational control, and legal obligations, intricately shaping the GST/HST treatment applicable to each structure. Amidst the existence of similar but non-partnership arrangements, proper differentiation is vital, ensuring arrangements qualify appropriately under the ETA definitions and responsibilities.

Relationships that are not partnerships

Activities solely for property holding typically do not manifest business operations under partnership law, reiterating that profit-sharing alone lacks sufficiency for partnership designation. Ultimately, partnerships, while diverse and flexible in composition and operational design, bear significant legal implications warranting thorough analyses of relationships, conduct, and shared objectives to appropriately define their existence, assert rights, and recognize obligations.

Another example is a relationship between Corporation A and Corporation B regarding a game show, where Corporation A retains the marketing rights and revenue for domestic distribution, without any provisions for shared costs, profits, or joint responsibilities. Each corporation stands independently, though they equalize their voices in decision-making, requiring the unique expertise of one another for production needs. This dynamic relationship reflects characteristics of a joint venture rather than a partnership. Partnership law clarifies that the mere joint ownership of property does not automatically establish a partnership.

A co-ownership relationship exists when individuals hold property together but do not necessitate an agreement, nor do they automatically share profits or losses. Tenants in common (ownership of property by two or more persons) can independently manage their shares, contrasting with partnerships where member consent is required for transfer and actions are generally taken on behalf of the partnership. In the absence of agreements, co-owners lack recourse claims against the shared property, different from partnership contexts where members can claim rights during dissolution. Sharing profits from joint property may create an appearance of partnership, yet receipt of gross returns alone does not establish such a relationship.

For instance, if two individuals jointly own a building and share rental income, they are not partners because the income is merely derived from co-ownership, unlike when engaging in a common business like a retail store where shared profits, losses, and capital input can signify partnership. Cost-sharing arrangements allow separate businesses to operate from a shared facility, splitting specific operational expenses, but do not constitute a business for taxation. Physicians sharing clinic costs while operating independently confirm this, as they have not agreed to share profits or responsibilities, exemplifying the absence of partnership despite an expense-sharing agreement being in place.

GST/HST Memorandum 14-9-1 “Partnerships - Determining the Existence of a Partnership” outline the factors that are relevant to determining whether a partnership exists.

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