20 January 1995 External T.I. 9426165 - PATRONAGE DIVIDEND - DEFINITION OF "PAYMENT"

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:

What constitutes "payment" within the meaning of paragraph b) of the definition of "payment" in subsection 135(4).

Position TAKEN:

Routine

Reasons FOR POSITION TAKEN:

Routine

		5-942616
XXXXXXXXXX	A. St-Amour

Attention: XXXXXXXXXX

January 20, 1995

Dear Sirs:

Re: Patronage Dividend - Definition of "payment" in subsection 135(4) of the Income Tax Act (the "Act")

This is in reply to your letter of October 5, 1994 requesting our interpretation of the meaning of the word "payment" for the purposes of section 135 of the Act. We apologize for the delay in responding to your letter.

It is our understanding that your enquiry relates to a specific completed transaction which is presently being audited by the Vancouver District Office. The following comments are, therefore, of a general nature only, and are not binding on the Department.

Subsection 135(1) of the Act allows a deduction to the cooperative of the aggregate payments made to the members in the year or within 12 months thereafter pursuant to allocations in proportion to patronage. The issue of shares by the cooperative from its capital stock to a member in satisfaction of patronage dividends will constitute payment within the meaning of paragraph b) of the definition of "payment" in subsection 135(4) of the Act, where, and to the extent, such issue results from a member's liability to purchase such shares pursuant to a by-law of the cooperative, statutory authority or at the request of the member.

In other words, there must be an obligation on the part of the cooperative to pay all or a portion of the dividend and an obligation of the member to subscribe for shares which would be satisfied by the issue of shares to the member having a par value equal to the member's share of such portion of the dividend.

A explained in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the above comments do not constitute an advance income tax ruling and are not binding on the Department. We trust the above comments will be of assistance to you. If you have any other questions do not hesitate to contact us.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch

c.c.: Jim Lawson
Vancouver District Office