I am trying to understand the GST rules regarding the small supplier rule, specifically the term ‘associated’. Considering a scenario like this -
Partnership of 6 people (3 x husband and wife partners, partnership split is partner A 25 / partner B 25 / partner C 12.5 / partner D 12.5 / partner E 12.5 / partner F 12.5 ) is registered for GST with sales around 400,000.
Partner E and partner F (husband/wife) are 50/50 partners in a small farm partnership also registered for GST with annual sales at 25,000.
E and F have several other 50/50 partnership (Not corp) businesses together. Each line of business income is under the 30,000 threshold on its own but together would be more than 30k annually. There is only one CRA business number. There is a separate name registered for one business with the provincial name registry.
Now my question is are all the E/F 50/50 partnerships ‘associated’ for GST purposes? Or would all business activities by E and F be considered to be one partnership even though they are quite separate income streams. Reading the GST guide RC4022 it would appear that these partnerships are NOT associated as they do not consist of More than 50% share of the other? Also it would appear that if these businesses were sole props they would all be associated and required to be GST registered. So then in the case of husband and wife partnerships it would seem like one can get around the GST requirement by having multiple small 50/50 partnerships.
Thanks for any help
The 6 person partnership would have a GST registration of it’s own. However, the multiple E/F partnerships can only have one GST registration. Income streams has nothing to do with the registration.
Thanks obhorst. So then… it would not be possible for E/F to have a partnership registered for GST and another one NOT registered? In other words, would GST need to be collected on all taxable income from all E/F partnerships once one is registered?
E/F 50/50 farming partnership, annual sales 25,000, GST registered to take advantage of ITCs on farm expenses.
2nd E/F 50/50 partnership, annual sales 15,000, - Is it a requirement to charge GST on these sales seeing first E/F partnership is registered? Also are E/F considered to be over the 30,000
Yes, all the sales need to be reported for GST so total sales are over $30,000. If this has been going on for a bit, i am surprised they haven’t been notified or audited yet. The income taxes must be filed on one return so the total sales don’t match the sales recorded for GST.
Thanks, actually it has been done the way you say, total sales reported for GST including all the lines of business, farming and GST remitted on the taxable sales. But after reviewing the associated business definition… I was second guessing myself and thinking that possibly not all the sales were GST taxable under the small supplier rules because of it being separate lines of business
When you have multiple unincorporated partnerships with the same owners who are GST registrants, then all must be GST registrants. The reason for this is that GST for non-corporate and non-trust entities is the individual. In the case of a 50/50 split of individuals then it is tied to this duo. So, if a 50/50 duo is a GST registrants then all their unincorporated businesses are GST registrants.
To make the bookkeeping easier and clearer for different lines of business I usually use separate GST accounts. This is very helpful not only for bookkeeping but also for GST rules for lines of business. For example farms have very different GST rules than general sales, etc. To keep these separate use different GST accounts number extensions for the same partners. IE
I would not encourage this - now you have two accounts in the bookkeeping system which must be combined for filing. If you have an audit, CRA doesn’t care about your two separate files - so now you just have to look through two files for the required documents. It seems you are making the whole process twice as complicated. I have similar situations where we have farm and business but HST works out well for us without going to that extra trouble.
Thanks for the replies. So then does the fact that the 2 individuals are partners in the 6 person partnership with only 12.5% ownership alone require that all further business income be reported on GST returns? Or is it only the 50/50 partnership that is also GST registered make that requirement?
Also suppose partner E were to add a sole prop business, the way I understand that individual would not be associated and so would get their own 30,000 small supplier limit? Or what is meant by the line ‘more than half of the total of the partnership’s profits’ below pasted from the RC4022
You are considered to be associated with another person for GST/HST purposes if you meet any of the following conditions:
- If you are a corporation, you and another corporation are associated if you are associated for income tax purposes.
- If you are not a corporation, you and a corporation are associated if you control the corporation or you are a member of a group that controls the corporation and each member of that group is associated with each other member.
- You are associated with a partnership if the total of your share of the partnership’s profits and the share of all the persons with whom you are associated is more than half of the total of the partnership’s profits or would be more than half if the partnership had profits.
- You are associated with a trust if the total value of your interest in the trust and the interest in the trust of all the persons with whom you are associated, is more than half the total value of all interests in the trust.
- You are associated with another person if you are each associated with the same third person.
So E and F are not “associated” with the 6 person partnership. The GST/HST situation of the 6 person partnership has no effect on E and F. It is the total other income of E and F that determines their GST/HST filing.
But E is associated with F. (see the area bolded above.) so any sole prop would still fall under the partnership GST/HST filing
But I am open to correction.
I am currently experiencing similar situation with clients who are shareholder/service providers of massage therapy client. 4 shareholders at 25% each. We were advised by CRA years back there should only be one GST account under the corporation to report all 4 shareholders taxable sale.
What is the Excise Tax Act section that references this treatment? I am stuck right now on locating this from our conversation with CRA years ago.
All accounts will begin with the same 9 numbers. If the numbers are all different, they cannot be registered in the corporate name.