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:?
Does a particular cooperative corporation satisfy the conditions of Regulation 4900(1)(h)?
Position:
It is a question of fact. We provided comments given in prior letters on the meaning of "shareholder" with added comments on dividends and share terms.
Reasons:
The corporation must have 100 shareholders (or 50 corporate shareholders if all shareholders are corporations) throughout a specified period. Either the test is met or it is not. Creating new shares may clarify the situation but the coop may already meet the requirements. The terms of the shares should not have any impact in themselves.
XXXXXXXXXX 1999-000812
W. C. Harding
Attention XXXXXXXXXX
January 25, 2000
Dear Sirs:
Re: Qualified Investments for RRSPs
This is in reply to your letter of November 11, 1999, in which you requested confirmation that a cooperative corporation would satisfy the requirements of subparagraph 4900(1)(h)(i) of the Income Tax Regulations (the "Regulations") where the attributes of the shares of the cooperative corporation are as specified in your letter.
As discussed during our telephone conversation of January 21, 2000, (XXXXXXXXXX/Harding) your inquiry is in respect of a cooperative corporation which wishes to issue shares in order to satisfy the conditions of subparagraph 4900(1)(h)(i) of the Regulations. Because your enquiry deals with an actual proposal to issue shares and have RRSPs acquire obligations of a cooperative corporation we cannot provide written confirmation of the tax implications unless a request is made for an advance income tax ruling as set out in Information Circular 70-6R3. However, we can provide the following general comments.
Subparagraph 4900(1)(h)(i) of the Regulations provides that a cooperative corporation must have not less than 100 shareholders or, if all its shareholders were corporations, not less than 50 shareholders, throughout the taxation year immediately preceding the year in which a bond debenture note or similar obligation of the cooperative corporation was acquired by an RRSP. "Shareholder" is defined in subsection 248(1) of the Act to include "a member or other person entitled to receive payment of a dividend". Accordingly the terms of any shares (including terms that provide the shares are redeemable at their paid up capital amount, are purchasable for cancellation, or are non-voting) issued in order to meet the regulation are not relevant, provided the number of shareholders that are entitled to receive dividends satisfy the conditions of the Regulation.
We would also note that the word "dividend" has a broad meaning and ordinarily means a distribution by any method of the profits of a company (see paragraph 2 of IT-67R3 "Taxable Dividends from Corporations Resident in Canada", available on the Internet at http://www.ccra-adrc.gc.ca). Accordingly, given the definition of shareholder as noted above, there may not be a need for a "cooperative corporation" defined in subsection 136(2) of the Act to issue shares if the minimum number of members are already "shareholders" entitled to receive dividends. In this respect we have previously stated that "patronage dividends" are not considered "dividends" for purposes of the Act but as discussed in paragraph 19 of Interpretation Bulletin IT362R, payments by a cooperative of interest on shares to the shareholders are generally considered to be dividends.
We trust this information will be of assistance to you.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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