CRA rules on the payment of a substantial capital dividend by a s. 149(1)(l) incorporated golf club

Shares for an incorporated club (likely a golfing club) had outstanding shares held by its members which were entitled to receive dividends, subject to a restriction in its letters patent prohibiting the payment of any income as determined under s. 149(2) (i.e., income other than taxable capital gains). The club sold its land and building, leased back a portion of the property from the purchaser and paid a capital dividend to its shareholders.

CRA ruled that the excess of the capital gain realized over the taxable capital gain was added to the club’s capital dividend account, notwithstanding that the portion of the taxable capital gain was exempt under s. 149(5)(e)(ii) (as being from property used directly in providing dining, recreational or sporting facilities) and that this capital dividend did not cause the club to cease to be exempt under s. 149(1)(l).

Neal Armstrong. Summary of 2016 Ruling 2015-0593841R3 under s. 149(1)(l).