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: Will an organization lose its tax exempt status under 149(1)(l) if it makes payments to its members under a XXXXXXXXXX program?
Position: Not in this situation.
Reasons: The organization has organized its program so that no income is being paid to members. Eligible members are receiving a return of contributions only.
XXXXXXXXXX , 2009
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling - XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling with respect to the above noted taxpayer. We also acknowledge the additional information provided to us during our various telephone and email conversations (XXXXXXXXXX ), as well as your further submissions dated XXXXXXXXXX
To the best of your knowledge, and that of the taxpayer, none of the issues involved in this advance income tax ruling request are:
(i) in an earlier return of the taxpayer or a related person;
(ii) being considered by a Tax Services Office or a Taxation Centre in connection with a previously-filed tax return of the taxpayer or a related person;
(iii) under objection by the taxpayer or a related person;
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(v) the subject of a ruling previously issued by this Directorate to the taxpayer 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:
In this letter, the following terms have the following meanings:
a) XXXXXXXXXX ;
b) "Members" are members of the XXXXXXXXXX ;
c) "XXXXXXXXXX Act" means the XXXXXXXXXX ;
d) "Program" means the XXXXXXXXXX Program that is the subject of this ruling, and which is further described in paragraphs 5 to 14 herein;
e) "Leave" for the purposes of the Program means a XXXXXXXXXX leave of absence that meets the eligibility requirements set out in the Program, which are further described in paragraph 8 herein;
f) "Member in Good Standing" means a Member who XXXXXXXXXX ;
g) "Eligible Member" means a Member who meets the eligibility requirements for the Program; and
h) "Members' Fees" means the annual XXXXXXXXXX dues required to be paid by Members pursuant to the XXXXXXXXXX Act and paid by Members, their businesses, or their employers.
1. The address of the XXXXXXXXXX is XXXXXXXXXX . The business number of the XXXXXXXXXX is XXXXXXXXXX . The XXXXXXXXXX is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
2. The XXXXXXXXXX is a corporation without share capital established under the XXXXXXXXXX Act. The XXXXXXXXXX submits that it is an organization that is exempt from tax pursuant to paragraph 149(1)(l) of the Act.
The following transactions are proposed:
5. The Taxpayer will implement a XXXXXXXXXX -year pilot XXXXXXXXXX Program.
6. The Program will apply to XXXXXXXXXX , not to employees.
7. The Program will pay a fixed sum of $XXXXXXXXXX per week for XXXXXXXXXX weeks, to a maximum of $XXXXXXXXXX per Leave per XXXXXXXXXX unit to XXXXXXXXXX who are Eligible Members.
8. The eligibility requirements of the Program will be as follows:
9. Members must complete an application form to apply for the payments and must provide supporting documentation to the XXXXXXXXXX as specified by the XXXXXXXXXX . Applications must be made within four weeks of:
10. The XXXXXXXXXX must approve the application before payments can be made pursuant to the Program.
11. The payments made under the Program will be made directly to the individual Eligible Member.
12. A T4A will be issued to the Member by the end of the February of the year following the payments indicating the amount paid to that Member under the Program. The amount paid will be reported on the T4A as "other income". The XXXXXXXXXX will inform the Members that the payments received under the Program are intended to be XXXXXXXXXX amounts and are taxable as such.
13. The Program will be funded solely by Members' Fees. The amounts needed to fund the Program will be determined prior to each fiscal year by estimating the expected payments for the next fiscal year using data compiled by consultants and actuaries and adjusted for previous surpluses, if any.
14. Each year, as Members' Fees are collected, the annual fees required to fund the Program will be set aside in a separate general ledger account (the "Account"). No income, interest or otherwise, will be attributed to the funds in this Account. Payments from the Program to the Members will be made only from the funds recorded in this Account. Any excess amount in the Account at the end of the fiscal year will be carried over to the next fiscal year to be used to fund the Program in the subsequent year.
15. No amounts will be paid out of any account of the XXXXXXXXXX other than the Account as payments to Members under the Program. For greater certainty, no amounts will be borrowed from any account of the XXXXXXXXXX to fund payments under the Program.
16. Notwithstanding the above, no payments under paragraph 7 above will be made prior to the date of this ruling.
Purposes of the Proposed Transactions:
The purposes of the proposed transactions are to further the objectives of the XXXXXXXXXX to XXXXXXXXXX .
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above, we rule as follows:
The proposed transactions set out above, and in particular, the payments described in paragraph 7 herein, will not, in and of themselves, cause the XXXXXXXXXX to cease to be a XXXXXXXXXX described in paragraph 149(1)(1) of the Act.
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 (the "CRA") provided that the proposed transactions are commenced by XXXXXXXXXX .
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.
Nothing in this advance income tax ruling should be construed as implying that the CRA has reviewed or is making a determination or ruling in respect of:
a) Whether the XXXXXXXXXX is, or has been for any particular period, exempt from tax under Part I of the Act pursuant to paragraph 149(1)(1). In this regard, we note that the question of whether the XXXXXXXXXX does, in fact, operate exclusively for any purpose other than profit with no part of its income payable to or otherwise available for the personal benefit of any member is a question of fact which must be determined on an ongoing basis. Such determinations fall within the responsibility of the CRA's Compliance Programs Branch;
b) Any tax consequences in relation to any facts or proposed transactions referred to herein other than those specifically described in the ruling given.
We note that payments made to Members under the Program from any funds other than the Members' Fees allocated to the Account as specified in paragraphs 13 and 14 herein, may result in the XXXXXXXXXX ceasing to be a XXXXXXXXXX as described in paragraph 149(1)(l) of the Act.
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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