2 October 1995 External T.I. 9516495 - TAX EXEMPT STATUS OF AN AGRICULTURAL SOCIETY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether an agricultural society is exempt under 149(1)(d) or 149(1)(e) of the Act and what effect certain payments to officers of the society have on its exempt status.

Position TAKEN:

Exempt under 149(1)(e) of the Act. It is a question of fact with respect to payments made to the organization's officers. The payments do not in and by themselves disqualify the organization from being exempt.

Reasons FOR POSITION TAKEN:

Not enough information was provided to determine if 149(1)(d) applies. If the payments are reasonable and are similar to what would be paid in an arm's- length situation, they will not affect the exempt status.

L. Barrows
XXXXXXXXXX			951649

Attention: XXXXXXXXXX

October 2, 1995

Dear XXXXXXXXXX:

Re: Tax Exempt Status of an Agricultural Society

This is in reply to your letter of June 15, 1995 in which you requested our opinion respecting the application of paragraphs 149(1)(d) or (e) of the Income Tax Act (the "Act") in determining the tax exempt status of an agricultural society. You also questioned what effect certain payments to officers of a society may have on its tax exempt status should paragraph 149(1)(e) of the Act apply and you requested confirmation that any income earned by a tax exempt society is not taxable anywhere in the Act.

Our Comments

We remind you that written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.

In our view, for the purposes of paragraph 149(1)(e) of the Act, an agricultural organization is an entity organized and operated for one or more of the following purposes: the advancement or furtherance of agriculture; the betterment of the conditions of those engaged in such pursuits; the improvement of the grade or quality of their pursuits or the development of a higher degree of efficiency in their respective occupations.

We have reviewed the general provisions governing all agricultural organizations as well as the Part III provisions relating specifically to Agricultural Societies in the copy of Bill 66 - an Ontario Provincial Act respecting Agricultural and Horticultural Organizations (the Bill) which you had enclosed. Based on this review, we are of the opinion that an incorporated agricultural society which conducts its activities in accordance with the stated objects of the Bill could qualify for exemption from Part I tax under paragraph 149(1)(e) of the Act. However, it is further noted that the determination of whether an agricultural organization may be exempted from Part I tax in accordance with this provision can only be determined after an examination of its operations for a particular period. We cannot determine from the limited information provided whether paragraph 149(1)(d) would be applicable.

Section 13 of the Bill stipulates that compensation may be paid only to the treasurer, secretary-treasurer or secretary and that reasonable expenses incurred by a director, officer or member in the performance of their duties may be paid. It is the Department's view that certain types of payments made directly to members, or indirectly for their benefit, do not, in and by themselves, disqualify an organization from being exempted from tax pursuant to paragraph 149(1)(e) of the Act. This view applies to payments such as salaries, wages, fees or honorariums for services rendered to the organization, provided the amounts paid are reasonable and in line with those paid in arm's-length situations for similar services. It also applies to payments made to employees or members of the organization to assist them in covering their expenses to attend various conventions and meetings as delegates on behalf of the organization, provided attendance at such conventions and meetings is to further the aims and objectives of the organization.

An organization which qualifies for exemption under paragraph 149(1)(e) of the Act is exempt from Part I tax and for any period throughout which an organization is exempt under paragraph 149(1)(e), it will be exempt from Part I.3 tax by virtue of paragraph 181.1(3)(c) and from Parts IV, IV.1, VI and VI.1 by virtue of subsection 227(14) of the Act.

We trust these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch