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: Is an NPO, whose main purpose is to provide dining, recreational and sporting facilities for its members taxable on the capital gain resulting from the disposition of property?
Position: No
Reasons: The property disposed of is used exclusively for providing dining, recreational and sporting facilities. Accordingly, by operation of subparagraph 149(5)(e)(ii), the capital gain resulting from the disposition is not included in calculating the NPO trust's income.
XXXXXXXXXX 2005-014887
XXXXXXXXXX, 2006
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling - XXXXXXXXXX (the "NPO")
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-named NPO. We also acknowledge your subsequent submissions of XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the NPO, none of the issues involved in this ruling is:
(i) in an earlier return of the NPO 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 NPO or a related person,
(iii) under objection by the NPO or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the NPO or a related person.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The NPO was incorporated on XXXXXXXXXX under the Companies Act of XXXXXXXXXX and is exempt from income tax under Part I of the Act by virtue of paragraph 149(1)(l) of the Act.
2. The NPO's mailing address is XXXXXXXXXX . Its business number is XXXXXXXXXX and it is served by the XXXXXXXXXX Tax Services Office as well as the XXXXXXXXXX Taxation Centre.
3. The main purpose of the NPO is to provide dining, recreational and sporting facilities for its members. The objects of the NPO include the following at paragraph XXXXXXXXXX of its Memorandum of Association:
- To promote XXXXXXXXXX and other athletic sports and pastimes;
- To establish, maintain and conduct a XXXXXXXXXX and to afford the members of such club all the usual privileges, advantages, conveniences and accommodations of a club;
- To acquire by purchase, lease or otherwise grounds near XXXXXXXXXX, and to lay out, prepare the same for XXXXXXXXXX or other athletic sports or pastimes;
- To buy, hire, prepare, make or provide and maintain and to sell all things required or which may be conveniently used in connection with the XXXXXXXXXX grounds, club-house and other premises of the company by persons frequenting the same;
- To buy, prepare, make, supply, sell and deal in all kinds of XXXXXXXXXX and other athletic sports and pastimes; and all kinds of liquors, provisions and refreshments (subject to any laws of the Province of XXXXXXXXXX in that behalf) required or used by the members of such club or other persons frequenting the lands, club-houses or premises of the company.
4. XXXXXXXXXX.
5. On XXXXXXXXXX, the shareholders of XXXXXXXXXX and of the NPO approved an arrangement whereby they would combine operations so that patrons would be able to enjoy multi-faceted, year-round recreational facilities.
6. To effect the arrangement described in 5 above, the following steps occurred:
- The XXXXXXXXXX (the "Club") was incorporated as a corporation without share capital under the Societies Act of XXXXXXXXXX on XXXXXXXXXX. The Club qualifies as a non-profit organization and is exempt from income tax under Part I of the Act by virtue of paragraph 149(1)(l) of the Act;
- The NPO and XXXXXXXXXX agreed to make their respective facilities available to the members of the Club;
- The shareholders of the NPO and of XXXXXXXXXX were permitted to transfer their shares of either corporation to the Club in consideration for which they would receive one paid up membership in the Club for each share so transferred.
7. As a result of the arrangement described in 5 and 6 above, and the share transfers by the shareholders of the NPO and XXXXXXXXXX, the Club currently owns XXXXXXXXXX of XXXXXXXXXX issued shares of the NPO (XXXXXXXXXX%) and XXXXXXXXXX of XXXXXXXXXX issued shares of XXXXXXXXXX (XXXXXXXXXX%). The remaining outstanding shares are widely held and are restricted in that they can only be exchanged by their respective shareholders for membership in the Club, which entitles them to use the NPO's facilities as well as those of XXXXXXXXXX. The members of the NPO are the members of the Club together with the XXXXXXXXXX remaining individual shareholders who did not exchange their shares for membership in the Club.
8. The NPO holds title to the following parcels of land totalling approximately XXXXXXXXXX acres, all in XXXXXXXXXX , collectively referred to as the "Property":
XXXXXXXXXX.
9. Of the XXXXXXXXXX acres of Property owned by the NPO, approximately XXXXXXXXXX acres were acquired from the XXXXXXXXXX (the "City") in XXXXXXXXXX Another XXXXXXXXXX acres were acquired from the City in XXXXXXXXXX. In both instances, as part of the terms of the grant, the City required that any proceeds derived from any future sale of the Property be committed to the development of recreational facilities and that the NPO make its facilities available to the general public. Specifically, the agreement documenting the XXXXXXXXXX transfer stipulates that the NPO, XXXXXXXXXX and the Club shall accommodate as many members of the public as are compatible with the efficient operation of the facilities as determined by a committee consisting of XXXXXXXXXX directors of the NPO and XXXXXXXXXX members of the City Council.
10. Over time, any real property owned by XXXXXXXXXX was disposed of and the proceeds applied to expanding and improving the facilities on the Property.
11. The Property is used exclusively for and directly in the course of providing the dining recreational and sporting facilities provided for the NPO's members. Specifically, the Property is currently used for the following purposes and facilities:
XXXXXXXXXX.
12. XXXXXXXXXX.
13. The NPO has received an unsolicited offer of approximately $XXXXXXXXXX for the Property and all improvements thereon (the "Offer").
Proposed Transactions
14. It is proposed that the NPO accept the Offer and apply the proceeds of sale toward financing the acquisition of land elsewhere in the XXXXXXXXXX area and the construction of a XXXXXXXXXX together with dining and recreational facilities similar to those currently operated on the Property. The NPO will realize a capital gain on the disposition of the Property and the improvements.
Purpose of the Proposed Transactions
15. The purpose of the proposed transactions is to XXXXXXXXXX and to ensure that the NPO members will be able to continue to enjoy the recreational facilities to which their membership entitles them.
Ruling Given
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, we rule as follows:
Pursuant to subparagraph 149(5)(e)(ii) of the Act, the taxable income of the deemed intervivos trust created by operation of subsection 149(5) of the Act will not include the capital gain resulting from the disposition of the Property and all its improvements.
The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX
Note:
This letter is based solely on the facts and proposed transactions described above. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Yours truly,
XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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