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.
CTF Nov 1992
Question 64
In addition to annual membership fees, recreational clubs sometimes charge a one-time initial fee for a new membership which extends over a specified period, say 99 years. If such a fee is properly included under paragraph 12(1)(a) of the Act in a club's income for a particular year, would a reserve generally be available to the club under paragraph 20(1)(m) of the Act based on the portion of the membership term remaining after the end of the year?
Answer
A reserve under paragraph 20(1)(m) of the Act may be deducted where amounts received have been included in income under paragraph 12(1)(a) in respect of goods that will have to be delivered after the end of the year, services that will have to be rendered after the end of the year, periods for which rent has been paid in advance, or amounts that may have to be repaid. An amount is included in income under paragraph 12(1)(a) of the Act only if it is "on account of services not rendered" or "may be regarded as not having been earned in the year or a previous year". However, an amount is considered earned and is not in respect of services not rendered if the taxpayer's right to it is under no restriction, contractual or otherwise, as to its disposition, use and enjoyment, or the taxpayer's right to the amount is absolute and unconditional.
In a situation where in addition to annual membership fees, a one-time initial fee is paid to the club for a new membership, the club would have to show that it was in fact under some definite restriction as to the disposition, use or enjoyment of such funds before a reserve under paragraph 20(1)(m) could be claimed. This could involve a commitment to refund a proportionate amount of the fee in the event the member leaves within a certain time period. Generally the annual membership fees cover the cost of providing facilities and services and the one- time initial fee merely represents a cost to the new member for the use of facilities paid for by previous members. Where this is the case, or where the club is endeavouring to build up a fund for future contingencies such fees should be reported as income under section 9 of the Act.
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, 1992
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, 1992
Email this Content