Alberta Poultry Marketers Co-Operative Limited v. Minister of National Revenue, [1977] CTC 2393, 77 DTC 287

A J Frost (orally: March 18, 1977):—I shall now give my decision in Appeal No 74-609 between Alberta Poultry Marketers Co-operative Limited, appellant, and the Minister of National Revenue, respondent.

This is an income tax appeal from notices of assessment in respect of the appellant’s 1969 and 1970 taxation years wherein management fees and profits from cattle and hog operations were assessed as income of the appellant. The question at issue in this appeal is whether or not the appellant, to the extent that it earned management fees and profits from cattle and hog operations, was carrying on operations for its own account and not as an agent for its members.

The appellant owned all the shares of William Scott & Company Limited of Vancouver, British Columbia and Centennial Hatcheries & Breeding Farms Limited of Hammond, British Columbia, which companies were involved in the poultry-raising business and were managed by the appellant, for which the appellant received a management fee.

The appellant also acquired an interest in Lily Dale Farm, Ponoka Farm, Birchwood Farm, Stewart Farm and Conrich Farm, and became involved in the raising of hogs and cattle as an extension of its poultry business.

The Conrich Farm was acquired with the approval of the Province of Alberta’s Department of Co-operative Activities under clause 12(1 )(e) of The Co-operative Associations Act, RSA 1955, c 59, which permitted the appellant to supply weaned pigs to its members.

Although the relationship between the poultry business and the raising of cattle and pigs is somewhat tenuous, there is nevertheless some factual relationship through feeding, marketing and the reduction of operating costs. All capital acquisitions were incidental to the mainstream of the appellant’s poultry operations.

On the evidence, I find:

1. That amounts available for distribution were allocated pursuant to the by-laws of the appellant and as required by The Co-operative Associations Act, and were allocated within a period of six months after the close of each fiscal year.

2. That the appellant was in fact and in law an agency for its members by virtue of section 38 of The Co-operative Associations Act and the standard by-laws which governed the operations of the appellant.

3. That the setting aside of reserves of income was a necessary aspect of the appellant’s business and the reserves maintained were at all times in accordance with sound business practices.

4. That the distribution of income to the members was in proportion to their respective contributions to earnings, and that all operating profits or earnings flowed through to the members.

5. That the appellant, at no time in the years under appeal, carried on business operations for its own benefit, but at all times acted as an agent for its members in the earning and distributing of profits.

6. That the amounts carried forward at the end of the 1969 and 1970 taxation years as unallocated income were in accordance with sound commercial practices and of no significance taxwise. The creation of reserves did not, in my opinion, create income to the company at any time.

In my opinion, the appellant was a true co-operative organization, legally and factually, in that all operating profits were accrued to the benefit of the members and each member had one vote, irrespective of the amount of poultry business the member transacted.

I am of the view that the income of the appellant is not subject to tax under any of the provisions of the Income Tax Act.

The appeal is therefore allowed.

Appeal allowed.