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: Whether the payment of the labour association's bank balance after its annulment to its current members would affect its non-taxable status
Position: No. It is a question of fact to be determined upon a review of the circumstances.
Reasons: There is no provision that would affect a labour organization's tax status when excess funds are returned to its members on its annulment. In addition, since the association's dues were reasonable and its bank balance is not excessive, subsection 8(5) would have no application to disallow any deductions previously claimed by the of your association
2005-013444
XXXXXXXXXX Charles Rafuse
613-957-8967
June 17, 2005
Dear XXXXXXXXXX:
Re: Labour Association Annulment and Bank Balance
This is in reply to your letter of May 24, 2005, concerning the annulment of the XXXXXXXXXX and the excess funds in the association's bank account.
Specifically, you have requested our opinion whether the payment of the association's bank balance to its current members would affect its non-taxable status. Since XXXXXXXXXX, the association has not paid any tax since it is a labour organization exempted from income tax under paragraph 149(1)(k) of the Income Tax Act ("the Act"). Association dues were originally set at $XXXXXXXXXX per month and later reduced to $XXXXXXXXXX per month.
The particular circumstances in your letter on which you have asked for our views pertain to a factual situation. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Regarding situations involving completed transactions, all relevant facts and documentation should be submitted to the local tax services office for their views. However, we are prepared to offer the following general comments, which may be of assistance.
Under paragraph 149(1)(k) of the Act, labour organizations are exempt from tax. In addition, there is no provision that would affect a labour organization's tax status when excess funds are returned to its members on its annulment. Accordingly, it is our view that your association would not have any tax liability when it disposes of its bank balance to its members.
Amounts paid to a trade union can be deducted in computing income from employment under paragraph 8(1)(i) of the Act. In addition, subsection 8(5) of the Act provides that dues paid to a trade union are not deductible to the extent they are levied inter alia for any purpose not directly related to the ordinary operating expenses of the trade union. It is our opinion that since your association's dues were reasonable and its bank balance is not excessive, subsection 8(5) would have no application to disallow any deductions previously claimed by the members of your association. In addition, it is our view that in the circumstances that you have described that there is no provision that would tax the recipients on the funds they receive on the distribution of the association's bank balance.
We trust this information is helpful.
Yours truly,
Charles Rafuse
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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