12 February 2002 External T.I. 2001-0091085 - MEANING OF PROPERTY

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether payments made to a non-profit organization are considered to be income from property.

Position: Yes

Reasons:

Consideration is received by each member in the form of a promise by the club to repay the sum of $XXXXXXXXXX . Since the promise to pay is given for consideration, it is legally enforceable and therefore constitutes a "right" for purposes of subsection 248(1) of the Act. As such, the club will be considered to have property for the purposes of subsection 149(5) of the Act.

XXXXXXXXXX 2001-009108
N. L. Storry
February 12, 2002

Dear XXXXXXXXXX:

Re: Interpretation of Subsection 149(5)

We are writing in response to your correspondence of July 3, 2001, wherein you requested our view regarding how a golf club, which is a non-profit organization (the "club"), should treat certain payments for purposes of the Income Tax Act (the "Act") made by the club's members to the club.

You have described a situation involving a non-profit organization that operates a golf club. The club is raising funds to finance the construction of certain capital improvements by requesting a one-time payment of $XXXXXXXXXX from each member. For those members not in a position to make the one-time payment, the following two alternative options are available: (1) pay $XXXXXXXXXX in the first year and $XXXXXXXXXX in the second year; and, (2) pay XXXXXXXXXX equal monthly installments of approximately $XXXXXXXXXX each. You have stated that the payments are entirely gratuitous and that no sanctions or restrictions will be imposed on members who choose not to make the payment. You are now requesting our opinion regarding the tax treatment of the payments made to the golf club in excess of $XXXXXXXXXX under the two alternative payment options.

In your opinion, the members of the club choosing the alternative payment options will make a promise to pay the club the stated amounts under each option and the payments under the plan are entirely gratuitous. Since the promise is not legally enforceable, it does not constitute a "right" in the hands of the golf club. As such, the promise to pay is not a "right" and is not considered to be property. Therefore, any income derived from such a promise would not be considered to be "income from property" for purposes of subsection 149(5) of the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4 dated January 29, 2001. The situation and proposed transaction described in your letter raises issues that go beyond the scope of a technical interpretation and would need to be analyzed in the context of an advance income tax ruling. However, we can provide the following general comments.

The point at issue is whether or not the club will be considered to have property for the purposes of subsection 149(5) of the Act. Subsection 248(1) defines "property" as follows:

"property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money,

(c) a timber resource property, and

(d) the work in progress of a business that is a profession;

The issue then relates to the "promise to pay" and whether such a promise is legally enforceable thereby constituting a "right" for purposes of the definition of "property" in subsection 248(1) of the Act.

You have stated that in order for a promise to be enforceable, there must be consideration. In this regard, the courts have defined "consideration" as something of value given by one party to another in order to bring a binding contract into existence. Black's Law Dictionary defines "consideration" as "the inducement to a contract. The cause, motive, price or impelling influence which induces a contacting party to enter into a contract. Some right, interest or benefit accruing to one party or some responsibility given or undertaken by the other."

It is our preliminary view that consideration is received by each member in the form of a promise by the club to repay the sum of $XXXXXXXXXX. If the promise to pay is given for consideration, it is legally enforceable and therefore constitutes a "right" for purposes of subsection 248(1) of the Act. As such, the club will be considered to have property for the purposes of subsection 149(5) of the Act. Therefore, the payments made to the club in excess of $XXXXXXXXXX under options (1) and (2) may constitute income from property or may be considered a cost of the property acquired by the club. However, we are unable to confirm the income tax consequences of the proposed transaction you describe in a technical interpretation. We would be pleased to confirm the tax consequences after obtaining a complete understanding of all the relevant facts of the particular situation, in the context of an advance income tax ruling.

We regret that we cannot be of further assistance.

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch