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: Can the elected board of directors of a provincially incorporated corporation representing the XXXXXXXXXX claim a tax exemption under subsection 81(3) of the Act on allowances paid to them by the corporation?
Position: No.
Reasons: The corporation is not an incorporated municipality, municipal utilities board, commission, corporation or similar body or a school board as required by the legislation.
2008-026683
XXXXXXXXXX L. Zannese
(613) 957-2747
October 17, 2008
Dear XXXXXXXXXX :
Re: XXXXXXXXXX
This is in response to your letter of January 25, 2008 requesting our views as to whether allowances paid to elected officials of the XXXXXXXXXX qualify for an exemption from tax pursuant to subsection 81(3) of the Income Tax Act (the "Act"). We also acknowledge our telephone conversation with you with respect to this file on September 25, 2008 (XXXXXXXXXX /Zannese)
You advise that the XXXXXXXXXX was incorporated as a corporation without share capital under the XXXXXXXXXX In addition, the XXXXXXXXXX offers programs and services to XXXXXXXXXX , such as community and family services, education and heritage programs and housing. The XXXXXXXXXX is governed by an elected board of directors consisting of XXXXXXXXXX regionally elected representatives, the president and the spokesperson of the XXXXXXXXXX . The XXXXXXXXXX holds elections for the board of directors every XXXXXXXXXX years, and has specific rules in place that govern the electoral process. The XXXXXXXXXX is considering offering members of its elected board of directors an allowance (the "Proposed Allowance").
In your view, the XXXXXXXXXX performs functions similar to that of a municipality and is therefore a "municipal utilities board, corporation, commission or similar body" such that its directors should qualify for the exemption provided by subsection 81(3) of the Act. You would like confirmation that the Proposed Allowance will be tax-exempt pursuant to that provision.
The situation outlined in your letter appears to be a factual one, involving specific taxpayers. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
The CRA's general views regarding subsection 81(3) of the Act are contained in Interpretation Bulletin IT-292, "Taxation of Elected Officers of Incorporated Municipalities, School Boards, Municipal Commissions and Similar Bodies" which is also available on our web site at www.cra-arc.gc.ca.
Subsection 81(3) of the Act provides that elected officials and members of certain municipal organizations may exclude from their income for a year an amount received as an allowance for expenses connected with carrying out employment duties, provided that the amount does not exceed 50% of their salary or other remuneration. In order to qualify for this exempt allowance, an individual must be:
(a) an elected officer of an incorporated municipality,
(b) an officer of a municipal utilities board, commission or corporation or any other similar body, the incumbent of whose office as such an officer is elected by popular vote, or
(c) a member of a public or separate school board or similar body governing a school district.
You have asked specifically whether the Proposed Allowance would be exempt under paragraph 81(3) (b) of the Act. Although the board consists of elected directors, it is not clear to us that the other conditions in paragraph 81(3) (b) are satisfied. In particular, it is our view that to be a "similar body", as used in the phrase "municipal utilities board, commission or corporation or any other similar body", the entity must be analogous to a body established by a municipal government. While not confirming the status of XXXXXXXXXX , based on the limited facts you provided, it appears to us that XXXXXXXXXX may be a public body performing a function of government as that term is used in paragraph 149(1)(c) of the Act. However, while a public body performing a function of government may be analogous to an incorporated municipality, it is not itself analogous to a body established by a municipal government. Therefore, in our view, the directors of XXXXXXXXXX would likely only qualify for a tax-exempt allowance under subsection 81(3) of the Act if a "public body performing a function of government" was included in paragraph (a) of that provision. We note that there is draft legislation proposed that, if enacted as proposed, would treat public bodies performing a function of government in the same manner as municipalities for certain provisions of the Act. To our knowledge there is no such draft amendment with respect to paragraph 81(3) (a) of the Act. While the Canada Revenue Agency is responsible for administering the tax system and applying the current tax legislation, the Department of Finance is responsible for developing federal tax policy and amending legislation. If your client is interested in pursuing a change to the legislation, we suggest that you contact the Department of Finance.
We trust that these comments will be of assistance.
Yours truly,
Eliza Erskine
A/Manager
Non-Profit Organizations and
Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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