Principal Issues: Whether a particular organization qualifies as an agricultural organization for purposes of paragraph 149(1)(e).
Position: See below.
Reasons: See below.
XXXXXXXXXX
2012-043883
XXXXXXXXXX, 2013
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, in which you request an advance income tax ruling.
We understand that, to the best of your knowledge, none of the issues involved in the ruling request is:
(i) in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) under objection by the taxpayer or a related person;
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not yet expired.
(v) is the subject of a ruling previously considered by the Directorate in respect of the taxpayer or a related person.
In this letter, unless otherwise expressly stated, all statutory references are to the provisions of the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the relevant definitions, the facts, the proposed transactions and their purpose is as follows:
DEFINITIONS
a) XXXXXXXXXX;
b) XXXXXXXXXX;
c) "Distributor" means a turnkey vendor, the primary distributor under the new process;
d) "Manufacturer" means the manufacturers of the XXXXXXXXXX;
e) "Organization" means the XXXXXXXXXX;
f) "Producers" means XXXXXXXXXX; and
g) XXXXXXXXXX;
FACTS
1. The mailing address of the Organization is XXXXXXXXXX.
2. The tax account number of the Organization is XXXXXXXXXX. The Organization is served by the XXXXXXXXXX Tax Services Office and by the XXXXXXXXXX Taxation Center.
3. The Organization previously filed its tax returns as an entity described in paragraph 149(1)(l). However, due to the proposed transactions, the Organization has recently reconsidered its filing position.
4. The Organization acts as a named administrator by the XXXXXXXXXX under the XXXXXXXXXX. The Organization primarily manages XXXXXXXXXX. The Organization is also responsible for the XXXXXXXXXX services for the benefit of Producers.
5. The by-laws of the Organization are registered with XXXXXXXXXX.
6. The Organization is a professionally managed not-for-profit agency with XXXXXXXXXX governed by an appointed board of directors with XXXXXXXXXX as a partner.
7. The Organization is governed by a XXXXXXXXXX-member board.
8. Any income of the Organization has not, nor is it ever intended to be payable to or made available for the personal benefit of any if its members.
9. The Organization provides a XXXXXXXXXX to a Manufacturer for each XXXXXXXXXX and receives a set fee from the Manufacturer for each XXXXXXXXXX. At no time does the Organization own the XXXXXXXXXX.
10. XXXXXXXXXX are currently manufactured by XXXXXXXXXX Manufacturers, shipped to retail stores by XXXXXXXXXX Distributors, and sold to Producers by more than XXXXXXXXXX local retailers, XXXXXXXXXX and XXXXXXXXXX/stores.
11. XXXXXXXXXX.
12. In addition, XXXXXXXXXX and thus declining XXXXXXXXXX revenues, in addition to increasing costs, have impaired the financial viability of the Organization and are threatening to impact its ability to implement XXXXXXXXXX services.
13. The Organization would like to improve its service to Producers and improve the overall integrity of the XXXXXXXXXX it manages by changing the manner in which XXXXXXXXXX are distributed and sold in Canada.
14. The Organization will continue to receive a fee per XXXXXXXXXX distributed; however, the Organization hopes that by streamlining the process it can increase its revenues while decreasing costs to Producers.
PROPOSED TRANSACTIONS
15. The Organization will contract with a Distributor to set up a direct XXXXXXXXXX distribution network in Canada whereby the Organization will receive a set fee from the Distributor for each XXXXXXXXXX distributed to a Producer.
16. Through this new process, the Organization will establish, on a contractual basis, one single Distributor in Canada for XXXXXXXXXX who will be expected to supply expertise in XXXXXXXXXX.
17. This new process will involve a contract between the Organization and the Distributor to develop a sales order website. The website, although it will appear to be a website of the Organization, will in fact be a sales order system of the Distributor. XXXXXXXXXX.
18. The Distributor will purchase the XXXXXXXXXX from the Manufacturers; however, the Organization will decide, with the Manufacturer, the price at which the XXXXXXXXXX are to be sold to the Producers. The Distributor will collect the proceeds from the Producers, deduct its costs and remit the remainder to the Organization.
19. The role of the Distributor is as a partner/client to the Organization to provide logistics on a national basis on behalf of the Organization. The Distributor will directly support the Organization in a contracted and subordinate background role. All services will appear to Producers as being supplied by the Organization.
20. In addition to the sales order website, the existing XXXXXXXXXX will be utilized to accept orders from Producers. Producers will be able to order XXXXXXXXXX easily and receive XXXXXXXXXX directly at their home/operation via courier or mail.
21. XXXXXXXXXX will continue to be distributed to some retail stores by the Distributor, but the focus is primarily to move towards a direct distribution system from the Distributor to the Producer.
PURPOSE OF THE PROPOSED TRANSACTIONS
22. The purposes of the proposed transactions are to:
- reduce the overall supply chain costs for XXXXXXXXXX;
- standardize the price of the XXXXXXXXXX for Producers;
- increase XXXXXXXXXX selection for Producers;
- increase the Organization's connection with Producers; and
- improve the XXXXXXXXXX at the point of sale.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above, we rule as follows:
A. Provided the Organization continues to meet the requirements described in paragraph 149(1)(e), income of the Organization from the sale of the XXXXXXXXXX, as a result of the proposed transactions above, will not, in and of itself, prohibit the Organization from being exempt from tax under Part I of the Act, pursuant to paragraph 149(1)(e).
The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed transactions are commenced on or before XXXXXXXXXX.
This letter is based solely on the facts and proposed transactions described above. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Yours truly,
XXXXXXXXXX
Manager
Non-Profit Organizations and Aboriginal Issues Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
