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:
Whether share of cooperative corporation is a "qualifying share" if some members get patronage dividend but not in respect of consumer goods or services.
Position:
O.K. but note that in order to be an "allocation in proportion to patronage" all members in same situation should get dividend, not just some; also note problem with 4900(13).
Reasons:
As long as allocation is not in respect of consumer goods or services the prohibition in 4901(2)(b) definition of "qualifying share" does not apply; however, where allocation is only to "some" members, may not be in "proportion" as required by 135(4)(a).
960520
XXXXXXXXXX P. Spice
Attention: XXXXXXXXXX
May 22, 1996
Re: Definition of "Qualifying Share"
This is in reply to your letter of February 1, 1996, and further to our telephone conversation of December 12, 1995 (Spice/XXXXXXXXXX), concerning the above-noted definition contained in subsection 4901(2) of the Income Tax Regulations (the "Regulations").
You ask whether a share of a cooperative corporation is a qualified investment for a registered retirement savings plan as prescribed by paragraph 4900(12)(c) of the Regulations. Your particular query relates to whether the share is a "qualifying share" under the definition contained in paragraph 4901(2)(b) of the Regulations. The share does not meet the condition in paragraph 4901(2)(a) of the Regulations since it is a condition of membership in the cooperative corporation that the share be purchased.
In your view if the share pays dividends to some but not all of the members pursuant to an allocation in proportion to patronage, the share would be a qualified investment for an annuitant that is not a "connected shareholder" as defined in subsection 4901(2) of the Regulations so long as any such allocation is not "in respect of consumer goods and services".
Please note the requirement in the definition of "allocation in proportion to patronage" in subparagraph 135(4)(a)(ii) of the Act, that allocations are not regarded as being in proportion to patronage if the same rate of allocation is not applied to all members who purchase similar goods, products or services. For example, and as explained in paragraph 4 of Interpretation Bulletin IT-362R, if certain members are allowed to purchase goods and services at special reduced prices and their allocations are reduced or eliminated as a result, allocations to the other members are not in proportion to patronage.
In addition, a share which is a qualified investment in accordance with subsection 4900(12), will become non-qualified pursuant to subsection 4900(13) of the Regulations, if:
(i)an individual provides services to or for, acquires goods from, or is provided services by, the issuer of the share or a person related to the issuer;
(ii) an amount is received by the RRSP in respect of the share; and
(iii) the amount can reasonably be considered to be
(A)on account of or in lieu or in satisfaction of, payment for the services to or for the issuer or the person related to the issuer, or
(B) in respect of the acquisition of the goods from, or services provided by, the issuer or the person related to the issuer.
To conclude, we agree that if the annuitants receive or can reasonably be expected to receive dividends from the cooperative in respect of their membership in the corporation pursuant to an "allocation in proportion to patronage" but not in respect of "consumer goods and services" as both those terms are defined in the Act, then the condition in paragraph 4901(2)(b) definition of "qualifying share" would be met.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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