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 a cooperative corporation (as defined in subsection 136(2)), can pay out a taxable dividend rather than a patronage dividend.
Position TAKEN:
Yes as long as the quantum is within the guidelines established by applicable legislation such as the Canada Cooperatives Association Act.
Reasons FOR POSITION TAKEN:
Legislation.
963691
XXXXXXXXXX G. Donell
Attnetion: XXXXXXXXXX
April 15, 1997
Dear Sirs:
Re: Section 135 of the Income Tax Act - Patronage Dividends
This is in reply to your letter of November 4, 1996 in which you requested an interpretation of section 135 of the Income Tax Act (the "Act") in a given situation. We apologize for the delay in responding.
It appears that the interpretation you seek relates to a proposed transaction to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. Where, however, the issue to be considered involves a question of fact, the Department will not rule unless all of the relevant facts are known.
Nevertheless, we can offer the following general comment, which, we hope, may be of assistance.
A cooperative corporation (the "cooperative") within the meaning assigned that term by subsection 136(2) of the Act may, within the terms of its governing legislation such as the Canada Cooperative Associations Act. 1970-71-72, c.6, s.1 (the "CAA"), distribute its earnings in a manner other than through an allocation in proportion to patronage. Such distribution may, for example, take the form of dividends on shares, interest on capital stock and interest on loan capital. We refer you to paragraphs 19 to 21 of IT-362R titled "Patronage dividends" for a discussion of the taxation of some of these amounts. It is our understanding however that the CAA and similar provincial legislation restrict or cap the amount that may be paid out by the cooperative with respect to interest or dividends on share or loan capital. Accordingly while the cooperative may declare and pay dividends that would be characterized as taxable dividends such amounts would be restricted in amount to that permitted by its governing legislation.
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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