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 income of the municipality would be exempt under 149(1)(c)?
Position: Maybe.
Reasons: See discussion.
XXXXXXXXXX
2014-051865
R. Meers
(613) 957-2100
February 26, 2014
Dear XXXXXXXXXX:
Re: Municipal Corporations 149(1)(c) and (d.5)
This is in response to your e-mail of January 20, 2014, inquiring as to whether income received from the Ontario Power Authority would be exempt from tax under paragraph 149(1)(c) of the Income Tax Act ("Act").
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Although we cannot comment on your specific situation, we are able to provide the following general comments which may be of assistance.
Paragraph 149(1)(c) of the Act allows for an exemption from tax on the taxable income of a person for a period when that person was a municipality in Canada, or a municipal or public body performing a function of government in Canada. Therefore, if the activity is being carried out by the municipality, the income of the municipality would be exempt from tax.
It is unclear from the information provided in your correspondence as to whether the participation in the program would be carried on through the municipality or through a corporation. As such we refer you to paragraph 149(1)(d.5) of the act which, subject to subsections 149(1.2) and (1.3) of the Act, exempts from tax the income of a corporation, commission or association, not less than 90% of the capital of which was owned by one or more municipalities, if the income for the period of the corporation, commission or association from activities carried on outside the relevant geographical boundaries does not exceed 10% of its income for the period.
If a corporation is to be used, not less than 90% of the capital of which was owned by the municipality, it would appear that the additional income would not impact the entity's exemption, provided it otherwise qualified, as the income would be generated within the geographical boundaries of the municipality.
Furthermore, even if the income was to be generated outside of the geographical boundaries of the municipality, the entity could still be exempt under paragraph 149(1)(d.5). Subsection 149(1.2) excludes certain income from the determination of whether more than 10% of the income (of the corporation to which paragraph 149(1)(d.5) applies) is derived from activities carried on outside the relevant geographical boundaries. Generally, income derived from activities carried on pursuant to an agreement in writing between the corporation and Her Majesty in right of Canada or a province, or a municipality or a public body performing a function of government, or certain subsidiaries, within their geographical boundaries, are not included in the determination. Additionally, income is excluded from activities carried on in a province as a producer of electrical energy or natural gas, or as a distributor of electrical energy, heat, natural gas or water, where the activities are regulated under the laws of the province.
We trust that these comments will be of assistance.
Yours truly,
Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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