Income Tax Severed Letters - 2020-10-14


2019 Ruling 2018-0752521R3 - Sale of XXXXXXXXXX

Unedited CRA Tags

Principal Issues: 1. Is the gain on the sale of the Subject Property taxable in the hands of the Club pursuant to subsection 149(5) of the Act?
2. Would the payment of the special assessment to the XXXXXXXXXX Reserve Fund jeopardize the Club’s tax-exempt status under paragraph 149(1)(l) of the Act?
3. Would the distribution of the Excess Amount by the Club to the XXXXXXXXXX Members jeopardize the Club’s status under paragraph 149(1)(l)?

Position: 1. No.
2. No, provided the amount of the special assessment is not greater than the amount prescribed in an Independent XXXXXXXXXX Reserve Fund Study issued by a qualified Reserve Fund Study provider.
3. No.

Reasons: 1. Based on the information provided, the Subject Property was used exclusively for and directly in the course of providing dining, recreational, or sporting facilities to the members of the Club.
2. By-law XXXXXXXXXX adopts reserve fund provision of the XXXXXXXXXX and provides for the establishment and maintenance of the Club Reserve Fund.
3. Subsection 149(2) excludes the amount of any taxable capital gains from the calculation of a 149(1)(l) entity’s income. The non-taxable portion of a capital gain is not included in the definition of “income” at section 3 and therefore payments of such amounts to members would also not affect an entity’s eligibility for exemption under paragraph 149(1)(l).

Technical Interpretation - External

28 September 2020 External T.I. 2020-0851731E5 - CEWS - 125.7(4)(d) election - NAL chain

Unedited CRA Tags
s. 125.7(4)(d) election is not available for a multi-tiered chain of entities that are not dealing with each other at arm’s length
FA1 earning qualifying revenue from arm's length customers through FA2 had no qualifying revenue

Principal Issues: Can the election provided in paragraph 125.7(4)(d) be made in a chain of non-arm's length entities?

Position: It doesn't appear that this is possible given the requirements of the calculation.

Reasons: Non-arm's length sales are not permitted in elements C and D of the formula; as well, it seems that the "qualifying revenue" in elements C and D must be based on actual amounts, not deemed amounts.