Principal Issues: Can a taxpayer that is a cooperative corporation and a member of a partnership deduct, under subsection 135(1), patronage dividends based on business the members have conducted with the partnership?
Position: A taxpayer may deduct patronage dividends payments that are computed in relation to business it has done with or on behalf of its customers. Where a partnership has customers for purposes of section 135, the deduction under that section must be made at the partnership level.
Reasons: Subsection 135(1) sets out the conditions under which a taxpayer may deduct payments it makes to its customers pursuant to allocations in proportion to patronage, which are defined as amounts computed in relation to business done with or on behalf of the taxpayer’s customers. Subsection 96(1) of the Act applies to treat the partnership as a separate person for purposes of section 135 of the Act.