22 August 1994 Internal T.I. 9420867 - INVESTMENT TAX CREDITS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

At what rate is ITC earned, and by whom is ITC claimed, where an agency co-operative corporation is involved .ie., is ITC earned at the rate applicable to each member and claimed by them or is it earned at the rate applicable to the cooperative corporation.

Position TAKEN:

It depends on the agency relationship. If the agency is with respect to income and property then any property acquired is considered to be acquired by the each member and ITC is earned by the rate applicable to them and claimed by them. If the agency is with respect to income only then the cooperative corporation is considered to have acquired any property as principal and any ITC is earned at the rate applicable to the cooperative corporation and claimed by it.

Reasons FOR POSITION TAKEN:

Principal Acquiring property would depend on the Agency agreement. ITC is earned and claimed by whomever is the principal.

		August 22, 1994

	Edmonton District Office	Business and General
	Henry Vogelaar	  Division
R. Albert
	Debbie Avery	(613) 957-2100
	Section 451, SR&ED

7-942086

Agency Cooperative Corporations

We are writing in response to your request of August 16, 1994 concerning agency cooperative corporations and investment tax credits ("ITC").

In particular, subsection 136(1) treats cooperative corporations that would otherwise be private corporations as not being private corporations except for certain purposes of the Act. Certain amendments were made in 1984 to subsection 136(1) to expand these certain purposes and the related 1984 Technical Notes state that these amendments were made so that an eligible cooperative corporation may obtain the benefit of the 35% rate of ITC on scientific research and experimental development ("SR&ED") expenditures and to obtain the right to a refund of any unused ITC.

You are considering a request from an agency cooperative corporation, which meets the definition in subsection 136(2), for ITC on behalf of its members at the 35% ITC rate for the years 1989 through 1983. You are concerned because paragraph 6 of IT-493, entitled `Agency Cooperative Corporations' states that "where a cooperative corporation acquires property as agent for its members, the property belongs jointly to those members and is subject to accounting in their individual financial statements and income tax returns in respect of capital cost allowance, terminal losses, recapture of capital cost allowance, capital gains and losses and investment tax credits." You have requested our opinion on whether an agency cooperative corporation can claim ITC at the 35% rate to be distributed to its members or whether paragraph 6 of IT-493 prevails and the members are to claim the ITC at the rate applicable to each member (35% for CCPC's and 20% for individuals and others.) You have also requested as quick a response as possible as there are XXXXXXXXXX members of the cooperative who may be required to file complete T661 claims on prior period SR&ED expenditures before September 13, 1994.

Our Comments

As reflected in paragraph 1 of IT-493, depending on the arrangement entered into, a cooperative corporation may act as agent of its members or as a principal in its own right. Where a cooperative corporation acts as agent, any transaction by the agent constitutes at law a transaction by the principals, that is, the members. Accordingly, any earnings arising from such an arrangement are earnings of the members and any property acquired belongs jointly to those members and are subject to accounting in financial statements and income tax returns of the members. In our view, under these arrangements the members are to claim any ITCs at the rate applicable to each member. Where cooperative corporations act as principal on their own right, property acquired will belong to the cooperative corporation and ITC will be claimed at the rate applicable to them as private corporations (35% in the case of these SR&ED expenditures). Paragraph 34 of IT-331R, entitled Investment Tax Credit, provides some comments relating to ITCs on property acquired by a cooperative corporation on its own right.

The comments in the preceding paragraph concerning cooperative corporations acting as agent relate to those instances where the agency relationship applies for both income and property. We understand that some agency agreements may only apply to income so that when the cooperative corporation acquires property it acquires it as principal. Its a question of fact depending largely on the agency agreement as to the extent of the agency relationship and as to the ownership of property.

We have not been provided with the agency agreement in your particular situation but you verbally indicated that the cooperative corporation was filing income tax returns as though it was the owner of the property, for example the cooperative corporation claims capital cost allowance on the assets. This would suggest that the agency relationship was only to the extent of income in which case the cooperative corporation would be entitled to claim ITCs as principal. Alternatively, even if the agency relationship is with respect to income and property, we understand that the dollar amounts involved may not be material and that you may take an administrative position similar to that allowed for the claiming of capital cost allowance.

for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch