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 the gain from the sale of a portion of flatland by a non-profit XXXXXXXXXX would be taxable.
Position: No
Reasons: The XXXXXXXXXX qualifies as a non-profit organization under paragraph 149(1)(l) and the flatlands have been used by the XXXXXXXXXX directly and exclusively in the course of providing dining, recreational or sporting facilities to its members and therefore the gain would be exempt by virtue of subparagraph 149(5)(e)(ii) of the Act.
XXXXXXXXXX 2002-014079
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX (the "Club")- (Business # XXXXXXXXXX)
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge your letters of XXXXXXXXXX, providing additional information concerning the proposed transactions.
To the best of your knowledge and that of the Club, none of the issues involved in this ruling request is:
i. involved in an earlier return of the Club 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 Club or a related person;
iii. under objection by the Club or a related person; or
iv. before the courts.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The Club was created as a corporation without share capital by Letters Patent dated XXXXXXXXXX issued under the Corporations Act, XXXXXXXXXX.
The XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre services the Club.
2. The objects of the Club as provided in the Letters Patent are as follows:
a) XXXXXXXXXX;
b) To bind together as a united organization all XXXXXXXXXX; and
c) For the objects aforesaid, to accept donations, gifts, legacies and requests to carry on a XXXXXXXXXX.
The Letters Patent further provide that the Club shall be carried on without the purpose of gain for its members and any profits or other accretions to the Club shall be used in promoting its objects
3. By supplementary Letters Patent dated XXXXXXXXXX, the objects were amended to provide that the Club could maintain a clubhouse on lands owned by it in XXXXXXXXXX.
4. The Club owns approximately XXXXXXXXXX land of which approximately XXXXXXXXXX is flatland (the "Flatlands") XXXXXXXXXX. The land was acquired for the purpose of developing a XXXXXXXXXX for the use of the members of the Club.
5. XXXXXXXXXX. The Flatlands have been used for various Club purposes including XXXXXXXXXX.
6. The Club has XXXXXXXXXX voting members.
7. The Club qualifies as a non-profit organization and is exempt from income tax under paragraph 149(1)(l) of the Income Tax Act (the "Act"). The Club is organized and operated on a non-profit basis for recreational purposes including XXXXXXXXXX. The Club is carried on without the purpose of gain for its members and any profits or other accretion to the Club are used in promoting its objects.
8. The directors and the membership have determined that the facilities of the Club require upgrading including:
(a) XXXXXXXXXX;
(b) clubhouse expansion;
(c) construction of a nursery facility;
(d) construction of an athletic facility (including for example, tennis courts);
(e) relocation and renovation of the maintenance shed, and improving the sewage system;
(f) XXXXXXXXXX expansion;
(g) XXXXXXXXXX; and
(h) replacement of an outdated XXXXXXXXXX.
In addition, it has been determined that steps must be taken to improve the general appearance and ambience of the Club and to reduce the traffic in the clubhouse during peak periods (in particular the luncheon and storage facilities). These improvements require substantial funding which the Club is currently unable to provide.
9. The proposed transactions described below were the subject of a ruling previously issued by the Income Tax Rulings Directorate on XXXXXXXXXX, 1990 (file #3-2834). Due to a provincial freeze on the sale and development of certain lands and the subsequent poor market conditions, the Club did not complete the proposed transactions.
Proposed Transactions
10. The Club proposes to sell approximately XXXXXXXXXX of the Flatlands (the "Flatland Property"). The existing facilities on the Flatland Property will be removed or relocated to facilitate the disposition. A portion of the Flatland Property will be sold as un-built serviced single-family lots XXXXXXXXXX and the balance of the Flatland Property will be serviced and sold to a developer on bloc for development as condominium units XXXXXXXXXX.
11. The proceeds from the sale of the Flatland Property will be used to help finance the Club's plans to upgrade and expand the facilities and improve the general appearance of the Club property.
12. Club members will be offered the opportunity to purchase the single-family lots or condominium units before any are offered for sale to the general public. All sales would be at fair market value.
Purpose of the Proposed Transactions
13. The purpose of the proposed transactions is to provide funding for the planned upgrading and expansion of the Club facilities described in 8 above.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions and provided further that the proposed transactions are completed as described above, our rulings are as follows:
A. The exemption from tax on the taxable income of a club or association organized and operated exclusively for "...pleasure or recreation or for any other purpose except profit..." provided in paragraph 149(1)(l) of the Act will continue to apply to the Club throughout the period during which the proposed transactions are undertaken to the extent it would have applied had the proposed transactions not been entered into.
B. In computing the income of the deemed trust created in respect of the property of the Club by subsection 149(5) of the Act, no amount will be included in respect of any gain realized on the sale of the Flatland Property by virtue of subparagraph 149(5)(e)(ii) of the Act.
These rulings are given subject to the general limitations and qualifications set out in Information Circular IC 70-6R5 dated May 17, 2002, and are binding on the Canada Customs and Revenue Agency provided the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
??
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content