28 December 1995 Internal T.I. 9529347 - UNION OWNING SHARES

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.

		December 28, 1995

	XXXXXXXXXX Tax Services Office	Headquarters
	XXXXXXXXXX	A.M. Brake
	Client Assistance			(613) 957-8953

			952934

Union Owning Shares of Corporation

This is in reply to your memorandum of November 7, 1995, concerning the exempt status of a union should it purchase 50% of the shares of a corporation that owns and carries on the business of XXXXXXXXXX The funds to acquire the shares will come from the general operating funds of the union and they have sufficient money at this time to acquire the shares.

A labour union is an association of workers organized for the purpose of, but not limited to, securing of favourable wages, improved labour conditions, better hours of work, and righting grievances against employers.

In the case of O'Brien v The Queen, 85 DTC 5202, it was held that the profits of a newspaper business were not taxable in the hands of the union members. Essentially, in our view, the court held that the business was carried on by the union and that the profits actually belonged to the union which was exempt by virtue of paragraph 149(1)(k) of the Act, notwithstanding that the individual members received most of the money from the union tax free and not as profits from a business carried on by the members. In the case at hand, the union will not be carrying on a business but rather will own a 50% interest in a corporation that does carry on a business.

Given that a particular entity is a labour union and its purpose is as set out above, it is our view that paragraph 149(1)(k) of the Act would not, in and by itself, restrict the activities that can be carried on by the union unless the activities were such that we were able to show that the union was no longer, in fact, a union. In the absence of some specific legislation restricting its activities or otherwise stripping it of its status as a union, exemption under paragraph 149(1)(k) could not be denied.

An item for consideration is that subparagraph 8(1)(i)(iv) of the Act permits an employee to deduct in computing income from an office or employment any annual dues paid to maintain membership in a trade union. Paragraph 8(5)(c) of the Act denies a deduction where the dues are used for any purpose not directly related to the ordinary operating expenses of the union to which they were paid. We believe that a union's "ordinary operating expenses" can be defined as an expenditure which falls into place as part of the undistinguished common flow of the trade union's activity; that the expenditure forms part of the normal business carried on, calling for no remarks and arising out of no special or particular situation. While any special levy would clearly be denied by virtue of paragraph 8(5)(c), one might question the deductibility of dues which result in surplus operating funds which are used to acquire shares.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch