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:
Discussion of payments, involving shares, that can be made by a cooperative corporation pursuant to an allocation in proportion to patronage.
Position:
Described three situations and tied to section 135.
Reasons:
Wording of the provisions in section 135.
XXXXXXXXXX 973027
Attention: XXXXXXXXXX
March 12, 1998
Dear XXXXXXXXXX:
Re: Patronage Dividends Received and
Paid by a Cooperative Corporation
This in reply to your letter of November 14, 1997 wherein you requested our comments with respect to the income tax treatment of an "allocation in proportion to patronage" as defined in subsection 135(4) of the Income Tax Act that is effected with regard to the shares of a cooperative corporation. All references to statute are to the Income Tax Act except as otherwise specified.
It is our understanding that your request relates to specific completed transactions. Consequently, we can only provide you with general comments since the review of such specific matters should be dealt with by your Tax Services Office.
As discussed with you it would seem that subject to the governing by-laws and corporate statutes there are generally three situations where a payment pursuant to an allocation in proportion to patronage could be made by a cooperative corporation ("Coop") as a consequence of an issue of its shares to members.
The first situation, which is provided for in paragraph (a) of the definition of "payment" in subsection 135(4), would be by way of an issue of the shares of the Coop to the member. The shares must be redeemed by the Coop in the year of issue or within 12 months thereafter for an amount equal to the face value of the shares.
The second situation is provided for in paragraph (b) of the definition of "payment" in subsection 135(4) where the member of the Coop may be required to make a loan to the Coop or where the member has been issued shares but has not paid for them. Under those circumstances the Coop may, pursuant to this paragraph (b), apply as a payment an allocation in proportion to patronage to a member's liability to the Coop with respect to the loan or the subscription payable by the member.
The third situation would be where a share is issued as payment pursuant to an allocation in proportion to patronage and is not to be redeemed within 12 months from the year of issue. The amount of the payment in this case will be the value of the share which is a question of fact.
Where a share is issued to a member by the Coop the amount of the payment, that is the value of the share, is, pursuant to subsection 135(7), to be included in computing the income of the member in the year the share is received and the payment is deductible by the Coop pursuant to subsection 135(1).
Similarly, pursuant to an allocation in proportion to patronage, where an amount is applied by the Coop against the subscription of shares payable by a member, the amount of the payment is to be included in computing the income of the member in the year the payment is applied to the subscription payable pursuant to subsection 135(7) and the payment is deductible by the Coop pursuant to subsection 135(1).
As requested the contact person at the Department of Finance with whom you may want to discuss your particular situation is Ms. Robin Maley and she can be reached at (613-992-4859).
We trust that the above information will be of some assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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