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 a credit union that is a CCPC required to file T2SCH53 (GRIP calculation)?
Position: No.
Reasons: Section 89 is not specifically listed in the exceptions described in subsection 137(7). In addition, under subsection 137(4.1), a payment by a credit union in respect of shares is generally deemed to be paid or payable as interest.
September 5, 2013
Paulette Salloum Bob Naufal
T2 Strategy & Coordination Section IT Rulings Directorate
Assessment and Benefit Services Branch
2013-048749
Credit Unions
We are writing in response to your email dated May 1, 2013, wherein you asked whether a credit union that is a Canadian-controlled private corporation ("CCPC"), as defined in subsection 125(7) of the Income Tax Act (the "Act"), is required to file form T2SCH53, General Rate Income Pool (GRIP) Calculation or T2SCH54, Low Rate Income Pool (LRIP) Calculation with respect to eligible dividends paid in the year. In this regard, T2SCH53 is used to compute the GRIP by a CCPC and T2SCH54 is used to compute LRIP by a non-CCPC.
We understand that where a credit union identifies itself as a CCPC on its T2 Corporation Income Tax Return, a request is automatically issued to the credit union to file T2SCH53.
Generally, a CCPC is defined as a private corporation that is a Canadian corporation other than a corporation controlled, directly or indirectly in any manner whatever, by public corporations, non-residents or a combination of the two. A CCPC may pay eligible dividends to the extent of its "general rate income pool" ("GRIP"), as defined in subsection 89(1) of the Act. In very general terms, a corporation's GRIP balance reflects taxable income that has not benefited from the small business deduction or any other special tax rate.
Subsection 137(7) of the Act provides that notwithstanding any other provision of the Act, a credit union that would otherwise be a private corporation is not to be considered a private corporation except for the purposes of certain provisions which includes inter alia section 125 of the Act. However, the list of exceptions does not include a reference to section 89 of the Act which contains the rules for determining whether a corporation can pay a dividend that is an eligible dividend. Therefore, it appears that a credit union that is a CCPC and that may have benefited from the small business deduction is not treated as a private corporation (and thus a CCPC) for the purpose of the eligible dividend rules.
It should be noted that subsection 136(1) of the Act is a similar provision that applies to cooperative corporations. The package of income tax technical amendments released by the Department of Finance on December 21, 2012 included a draft amendment to subsection 136(1) of the Act to add other provisions for which a cooperative corporation can be treated as a private corporation. These other provisions included references to certain definitions and provisions in section 89 of the Act that relate to the eligible dividend rules. If this amendment is enacted as proposed, a cooperative corporation will be considered a private corporation and possibly a CCPC for purposes of these rules.
Further, we note that subsection 137(4.1) of the Act provides that notwithstanding any other provision of the Act, where an amount is paid or payable by a credit union to a member thereof in respect of a share of a class of the capital stock of the credit union (other than any such amount paid or payable as or on account of a reduction of the paid-up capital, redemption, acquisition or cancellation of the share by the credit union to the extent of the paid-up capital of the share) that is not listed on a designated stock exchange, the amount is deemed to have been paid or payable by the credit union as interest and to have been received or to have been receivable by the member as interest. Moreover, subsection 137(4.2) of the Act provides that notwithstanding any other provision of the Act, an amount that is deemed to be interest under subsection 137(4.1) of the Act is deemed not to be a dividend.
In summary, a payment by a credit union to its members in respect of the shares of its capital stock would not normally result in dividend treatment. Where a situation arises to which a credit union that is a CCPC pays an eligible dividend, it seems that the credit union should file T2SCH54 given subsection 137(7) of the Act.
We trust that our comments will be of assistance to you.
Jenie Leigh
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2013
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2013
Email this Content