2000 Ruling 1999-0012943 - NON-PROFIT ORGANIZATION

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: Will the activities described in the ruling cause the taxpayer to cease to be a non-profit organization under paragraph 149(1)(l).

Position: No.

Reasons: Intent is not to make a profit or to carry on a trade or business; investment income will be paid to customers and there will not be any accumulated unreasonable excess funds

XXXXXXXXXX
XXXXXXXXXX 						991677
XXXXXXXXXX 						XXXXXXXXXX
					XXXXXXXXXX
Attention:  XXXXXXXXXX 

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letters of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above taxpayer. We also acknowledge receipt of the information provided in your letters of XXXXXXXXXX, and during our telephone conversations.

To the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein is:

(i) dealt with 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) subject to a ruling previously issued by the Income Tax Rulings & Interpretations Directorate; or

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.

In this letter, the following terms have the meanings specified:

(a) "Account" means the financial account within the XXXXXXXXXX which will be established pursuant to the Provincial Act;

(b) "Account Administrator" means the person appointed by XXXXXXXXXX as the XXXXXXXXXX Administrator pursuant to XXXXXXXXXX of the Provincial Regulation;

(c) "Act" means the Income Tax Act, R.S.C 1985 (5th Supp.) c.1, as amended to the date hereof, and, unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(d) "Board" means the XXXXXXXXXX;

(e) "Buyer" means the purchaser of a XXXXXXXXXX referred to in the Provincial Act, XXXXXXXXXX;

(f) XXXXXXXXXX;

(g) "Customers" means the consumers of XXXXXXXXXX in the Province;

(h) XXXXXXXXXX;

(i) XXXXXXXXXX;

(j) "Owner" means the owner of a XXXXXXXXXX;

(k) XXXXXXXXXX;

(l) "Province" means the Province of XXXXXXXXXX;

(m) "Provincial Act" means the XXXXXXXXXX, as amended to the date hereof;

(n) "Provincial Minister" means the XXXXXXXXXX;

(o) "Provincial Regulation" means the XXXXXXXXXX;

(p) XXXXXXXXXX;

(q) "Unit" means the XXXXXXXXXX.

FACTS

1. XXXXXXXXXX was incorporated without share capital pursuant to the Provincial Act.

2. XXXXXXXXXX is a corporation consisting of the members, all of whom are appointed by the Provincial Minister, who determines their remuneration.

3. The Provincial Minister designates one of the members of XXXXXXXXXX as the Chair and one of the members of the XXXXXXXXXX as the XXXXXXXXXX Administrator.

4. The Provincial Minister appoints the XXXXXXXXXX, which makes recommendations to the Minister for rules and regulations relating to, inter alia, XXXXXXXXXX.

5. XXXXXXXXXX operates as a non-profit organization for the purposes of paragraph 149(1)(l) of the Act.

6. XXXXXXXXXX shall insure that the XXXXXXXXXX operated so that no profit or loss results on an annual basis from its operation."

7. XXXXXXXXXX must provide the Provincial Minister with an annual report containing a summary of the activities of the Account.

8. XXXXXXXXXX.

9. The purpose and duty of XXXXXXXXXX is outlined in XXXXXXXXXX the Provincial Act whereby

"...XXXXXXXXXX."

10.

XXXXXXXXXX

11.

XXXXXXXXXX

12. The balance of cash and short-term investments of XXXXXXXXXX on hand at the end of the XXXXXXXXXX fiscal period was expended on capital assets in early XXXXXXXXXX. The balance of cash and short-term investments on hand at the end of XXXXXXXXXX fiscal period is not unreasonable in relation to operational requirements at any time during that period.

13. An accumulated excess has not been maintained by XXXXXXXXXX at any time.

PROPOSED TRANSACTIONS

14.

XXXXXXXXXX

15.

XXXXXXXXXX

16.

XXXXXXXXXX

Each XXXXXXXXXX will also provide for a reasonable rate of return on equity. Other factors that will be incorporated into each XXXXXXXXXX include:

• composition of debt and equity;
• opportunity to achieve efficiencies through incentives;
• XXXXXXXXXX;
• incentives for future ongoing investment;
• XXXXXXXXXX;
• any other terms and conditions that the XXXXXXXXXX deems appropriate.

17. The Owner and Buyer will be bound by the terms and conditions of the XXXXXXXXXX as approved by the Board.

18.

XXXXXXXXXX

19.

XXXXXXXXXX

20.

XXXXXXXXXX

21.

XXXXXXXXXX

22.

XXXXXXXXXX

23. Each Buyer will be a corporation resident in Canada for purposes of the Act. Each Buyer XXXXXXXXXX will carry on a business of XXXXXXXXXX.

24.

XXXXXXXXXX

25. Throughout the effective term, the Owner shall supply and make exclusively available to and sell to the Buyer, and the Buyer shall be entitled to purchase from the Owner, XXXXXXXXXX.

26. In the following circumstances, XXXXXXXXXX will appoint the Account Administrator to act as a XXXXXXXXXX to XXXXXXXXXX:

• XXXXXXXXXX
• XXXXXXXXXX
• XXXXXXXXXX
• XXXXXXXXXX

27.

XXXXXXXXXX

28.

XXXXXXXXXX

29.

XXXXXXXXXX

30. No profit for income tax purposes is intended to result on an annual basis from XXXXXXXXXX, buying, or other activities of XXXXXXXXXX.

31. XXXXXXXXXX will establish the Account rules before XXXXXXXXXX. The Minister will specify the method that XXXXXXXXXX will use to allocate any Account balances.

32. Accumulated Account balances received, but not yet disbursed, will represent anticipated costs and obligations of the Account for the upcoming period. The Provincial Regulation will specify what types of obligations (XXXXXXXXXX) are anticipated and will support the reasonableness of any contingency amount held. Anticipated obligations will not include high impact/low probability events for which XXXXXXXXXX may be responsible for payment to the Owner.

33. The Provincial Regulation will permit accumulated Account balances that are being held in respect of future obligations to be invested, following prudent investment standards to be adhered to by the Account Administrator. Any such Account balances will be invested in short-term interest bearing vehicles that have minimal risk of capital loss. Long-term interest bearing vehicles will not be purchased because the Account balances are intended to be available at any time to satisfy its obligations. Any income earned on investing activities will be incidental to the activities of XXXXXXXXXX in fulfilling its purpose and duties, as described in the Provincial Act.

34. All income earned from investing activities in respect of the Account will be disbursed to Customers on an annual basis.

35. The Account will be wound-up, commencing no later than XXXXXXXXXX and to be completed no later than XXXXXXXXXX. Ultimately all accumulated Account balances will be disbursed to Customers. No amounts will be distributed to members of XXXXXXXXXX.

PURPOSE OF THE PROPOSED TRANSACTIONS

36.

XXXXXXXXXX

RULING GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our ruling is as set forth below.

The proposed transactions, in particular, the activities of XXXXXXXXXX in maintaining and operating the Account will not, in and of themselves, cause XXXXXXXXXX to be excluded from qualifying at a particular time as a non-profit organization as described in paragraph 149(1)(l) of the Act.

The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.

The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and is binding on the Canada Customs and Revenue Agency (the "CCRA") provided that XXXXXXXXXX described in the proposed transactions herein commences before XXXXXXXXXX.

OPINIONS

It is our view that:

1. A XXXXXXXXXX payment will be a payment for property that is a franchise, concession or licence for purposes of Class 14 of Schedule II of the Income Tax Regulations.

2. XXXXXXXXXX amounts will be included in the income of the recipient Buyer when each amount is received or receivable (quarterly or annually) pursuant to section 9 or when received pursuant to paragraph 12(1)(x) of the Act.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the CCRA. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

CAVEAT

Except as specifically described in the ruling and opinions given above, nothing in this letter should be construed as implying that the CCRA has agreed to or reviewed:

(a) the determination of whether, in any particular period, XXXXXXXXXX is a non-profit organization within the meaning of paragraph 149(1)(l) of the Act;

(b) the determination of whether XXXXXXXXXX is an agent in right of the Province;

(c) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling and opinions above.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch