26 May 2023 External T.I. 2022-0946411E5 - Classification of an Intermunicipal Management Board

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether an intermunicipal management board should be treated as a corporation for the purposes of the Act.

Position: Yes.

Reasons: According to the law.

XXXXXXXXXX									2022-094641
C. Chaput

May 26, 2023

Dear XXXXXXXXXX,

Re: Classification of an Intermunicipal Management Board

We are writing in response to your request dated November 21, 2022 wherein you requested our comments with respect to the classification of an intermunicipal management board (“IMB”) established under the XXXXXXXXXX for the purposes of applying the provisions of the Income Tax Act (footnote 3) , and more precisely subsection 1100(26) of the Income Tax Regulations (footnote 4) .

Your comments

You explain that renewable energy projects in Canada frequently take the form of limited partnerships. In addition, in recent years, it has become increasingly common for private developers to involve local municipalities in their projects. When more than one such municipality invests in a given project, and the project is situated in XXXXXXXXXX, they sometimes do so through a special purpose IMB created under the XXXXXXXXXX. Accordingly, the IMB acquires a direct or indirect interest in the limited partnership that owns the project assets alongside the private developer. The electricity produced by the limited partnership is then sold to XXXXXXXXXX under a long-term power purchase agreement.

In order for a limited partnership owning a renewable energy project to claim accelerated capital cost allowance without being constrained by the Canadian specified energy property rules, paragraph 1100(26)(b) of the Regulations requires that all of the members of the limited partnership be “corporations” the principal business of which is the sale, distribution or production of electricity (or certain other enumerated activities).

You are of the view that an IMB qualifies as a corporation for the purposes of subsection 1100(26) of the Regulations.

You note that the English and French versions the definition of the term “corporation” in subsection 248(1) are slightly different:

“corporation” includes an incorporated company;

« société » Sauf dans l'expression « société de personnes », s’entend d’une personne morale, y compris une compagnie.

You find further guidance on what constitutes a corporation in subsection 35(1) of the Interpretation Act (footnote 5) , which specifies that, for the purposes of every enactment:

corporation does not include a partnership that is considered to be a separate legal entity under provincial law;

and, in its French version, defines “personne morale” as

personne morale Entité dotée de la personnalité morale, à l’exclusion d’une société de personnes à laquelle le droit provincial reconnaît cette personnalité.

You also point out that the XXXXXXXXXX provide for the creation of IMBs. They contain essentially identical provisions, the main difference being that each act applies to a different set of municipalities.

XXXXXXXXXX define an IMB in a manner which resembles a corporation incorporated under the CBCA or XXXXXXXXXX. Most notably, they provide that:

• The IMB is a legal person (“personne morale”) (footnote 6) ;
• The IMB has limited liability, except in relation to certain borrowings (footnote 7) ;
• The IMB has a board of directors (footnote 8) ;
• The IMB is governed by by-laws and resolutions (footnote 9) ;
• The IMB can sue or be sued in its own name;
• The IMB has the right to deal with property in its own name (footnote 10) ;
• The IMB may contract loans (footnote 11) ; and
• Interests in the IMB carry voting rights (footnote 12) .

In summary, you observe that the English version of the definition of the term “corporation” uses the term “including” which appears to be broader than the French version, which uses “s’entend de” (i.e. means). You argue that a purposive analysis of the term corporation supports the view that where one of the two versions is broader than the other, the common meaning would favour the more restricted or limited meaning, being in this case the French version. You conclude that where an entity is considered a “personne morale” under its constituting act or under XXXXXXXXXX civil law, it should necessarily qualify as a corporation for the purposes of the Act.

You also note that this approach is consistent with our longstanding position. In that regard you referred us to several technical interpretations. (footnote 13) Based on these positions you are of the view that it would be consistent with the CRA’s past practice to conclude that an IMB, which is considered a legal person (“personne morale”) under XXXXXXXXXX, should equally be treated as a corporation for Canadian tax purposes.

Finally, you argue that your position is in line with CRA’s two-step approach (footnote 14) to determine the status of a foreign entity for Canadian tax purposes which in your view, would be appropriate to use in a domestic context.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

We are of the view that an IMB created under the XXXXXXXXXX qualifies as a corporation under subsection 248(1).However, paragraph 1100(26)(b) of the Regulations requires that each member of the partnership be a corporation described in paragraph 1100(26)(a) of the Regulations – that is a corporation whose principal business throughout a taxation year is: (i) manufacturing or processing; (ii) mining operation; or (iii) the sale, distribution or production of electricity, natural gas, oil, steam, heat or any other form of energy or potential energy – or another partnership described in paragraph 1100(26)(b) of the Regulations.

It is a question of fact as to whether the principal business of an IMB is one listed in paragraph 1100(26)(a) of the Regulations. Such a determination will depend on a review of all of the facts and circumstances of each case. Accordingly, based on the limited facts provided in your request, we cannot provide a definitive answer to this question.

We trust our comments to be of assistance.

Yours truly,

Jean Lafrenière LL.B., LL.M. Fisc.

for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 XXXXXXXXXX.

2 XXXXXXXXXX.

3 R.S.C. 1985, c.1 (Fifth Suppl.), as amended (the “Act”).

4 C.R.C., c. 945, as amended (“the Regulations”).

5 R.S.C., 1985, c. I-4.

6 XXXXXXXXXX.

7 XXXXXXXXXX.

8 XXXXXXXXXX.

9 XXXXXXXXXX.

10 XXXXXXXXXX.

11 XXXXXXXXXX.

12 XXXXXXXXXX.

13 For example see technical interpretations number 9428225, 2006-0200451E5 and 2012-0441781E5.

14 The two-step approach is set out as follows: 1) Determine the characteristics of the foreign business association under foreign commercial law; and 2) Compare these characteristics with those of recognized categories of business associations under Canadian commercial law in order to classify the foreign business association under one of those categories.