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:
Where a municipal corporation carries on activities outside its geographical municipal boundaries in agreement with other municipalities, would subsection 149(1.2) apply to exclude the income from such activities from the 10% portion of the test provided for in paragraph 149(1)(d.5)?
Position:
Possibly. It is a question of fact whether the requirements of subsection 149(1.2) are met.
Reasons: Legislation
XXXXXXXXXX 2000-004538
J. Leigh
February 14, 2001
Dear XXXXXXXXXX:
Re: Municipal Corporations
This is in reply to your letter of August 8, 2000 requesting our views on the application of paragraph 149(1)(d.5) and subsection 149(1.2) of the Income Tax Act (the "Act") to a situation where more than 10% of the income of a municipal corporation for the period is derived from activities carried on outside its geographical municipal boundaries in agreement with other municipalities. We also acknowledge receipt of your letter of December 1, 2000.
Your request relates to a completed transaction involving specific taxpayers. As indicated in paragraph 22 of IC 70-6R4, confirmation of the income tax consequences of a completed transaction should be referred to the local tax services office. Although we are not able to comment specifically on the situation you have described, we can offer some general comments.
Subject to subsections 149(1.2) and (1.3) of the Act, paragraph 149(1)(d.5) of the Act exempts a corporation from Part I tax on its taxable income for a particular period if not less than 90% of its capital is owned by one or more municipalities in Canada and the income of the corporation from activities carried on outside the geographical boundaries of the municipalities does not exceed 10% of its income for the period.
Subsection 149(1.2) of the Act excludes certain income from the determination of whether more than 10% of the income of a corporation to which paragraph 149(1)(d.5) of the Act applies is derived from activities carried on outside the geographical boundaries of the municipality or municipalities that own the corporation. Specifically, income derived from activities carried on pursuant to an agreement in writing with Her Majesty in right of Canada or a province or a municipality, within its geographical boundaries, is not included in the determination. Also excluded from the determination is income derived from activities carried on pursuant to an agreement in writing with a corporation that is exempt under any of paragraphs 149(1)(d) to (d.6) of the Act and that is controlled by Her Majesty in right of Canada or a province or a municipality in Canada to the extent that such activities are carried on within the geographical boundaries of Canada, the province or the municipality that controls the corporation, as the case may be.
For the purposes of paragraph 149(1)(d.5) and subsection 149(1.2) of the Act, subsection 149(1.3) of the Act provides that 90% of the capital of a corporation that has issued share capital is to be considered to be owned by one or more municipalities only if the municipalities are entitled to at least 90% of the votes associated with the shares of the corporation.
Finally, we note that the fact that a corporation's activities are deemed by another statute to be carried on for municipal purposes does not, in and by itself, establish that paragraph 149(1)(d.5) of the Act would apply to the corporation. Whether or not the requirements of paragraph 149(1)(d.5) of the Act are satisfied in a particular situation is a determination that can only be made having regard to the facts of the particular situation.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R4 and are not binding on the Agency in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings directorate
Policy and Legislation Branch
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