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.
Principal Issues: Are refundable fees payable in the event of death a contingent liability or a genuine liability.
Position: Contingent. Death is certain but when is not.
Reasons: as above
C. Tremblay, CMA
March 25, 2004 (613) 957-2139
Re: Technical Interpretation - Refundable Membership Fees ("RM")
This is in reply to your letter of October 6, 2003, and is further to our letter of September 16, 2003 (2003-002240). You described a situation involving a Canadian controlled private corporation operating a business of providing various XXXXXXXXXX facilities to members. In addition to annual fees, members will be charged a RM for the new facility. It is intended that only XXXXXXXXXX RMs will be issued and they will be repaid from initiation proceeds when total membership exceeds XXXXXXXXXX. You now seek our comments in a scenario where the corporation would include a provision that would require it to repay a RM upon the death of an individual member, even if the membership was below XXXXXXXXXX at the time of the RM member's death.
The particular circumstance in your letter on which you have asked for our views is a factual situation. As explained in Information Circular 70-6R5 issued by Canada Revenue Agency ("CRA"), it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Although we are unable to provide any binding assurance with respect to the interpretations requested, we do provide the following general comments for your information.
In our view, although death is a certainty, the time when this event will occur is not certain. The corporation's obligation to return a RM is subject to either of two conditions precedent, being the reaching of XXXXXXXXXX RM memberships or the event of death of a RM member. When the XXXXXXXXXX RMs are sold the corporation must refund the RM to all the RM members and a definite liability will exist at that time. However, in our opinion, a definite liability will only exist before the membership goal is attained if an individual RM member is deceased, since only then is that condition met to refund an amount.
We trust our comments are of assistance.
Financial Industries Division
Income Tax rulings Directorate
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