26 June 2001 Internal T.I. 2000-0053287 - 135

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: 1. Does the phrase "income of the taxpayer for the year" in the definition of "income of the taxpayer attributable to business done with members" found in subsection 135(4) of the Income Tax Act include rental income and management fee income received by a cooperative corporation from a wholly-owned subsidiary?

2. Is the subsidiary a "customer"as that term is defined in subsection 135(4)?

Position: 1. Yes
2. Unable to conclude

Reasons: 1. Wording of the Act and paragraph 2 of IT-362R
2. Sufficient information has not been provided to allow a determination of whether the subsidiary is a "customer" within the meaning of subsection 135(4)

XXXXXXXXXX 2000-005328

June 26, 2001

Dear XXXXXXXXXX:

Re: Patronage Dividends

This is in reply to your letter of October 20, 2000 wherein you requested our views with respect to the definition of the "income of the taxpayer attributable to business done with members" found in subsection 135(4) of the Income Tax Act ("Act").

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

You have enquired as to the meaning of the phrase "income of the taxpayer for the year" in the above definition which is relevant for purposes of subsection 135(2) of the Act and whether or not it would include rental income and management fee received from a wholly-owned subsidiary of a cooperative corporation. You have advised that the wholly-owned subsidiary is not a member of the cooperative corporation.

Consistent with paragraph 2 of our Interpretation Bulletin IT-362R it is our view that rental and management fee income would normally be included in "the income of the taxpayer for the year" for purposes of the definition of the "income of the taxpayer attributable to business done with members" found in subsection 135(4) of the Act.

You have also enquired as to whether or not the wholly-owned subsidiary would be considered to be a "customer" within the meaning of that term in subsection 135(4) of the Act. Whether or not the wholly-owned subsidiary is "customer" as defined in subsection 135(4) of the Act is a question of fact which can only be determined upon the review of a specific fact situation. In this regard, with reference to the definition of a "customer" in subsection 135(4) of the Act a determination would have to be made as to whether the wholly-owned subsidiary is a person for whom the cooperative corporation renders services.

While we hope our comments are of assistance to you they neither address all of the potential income tax implications nor do they constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch