1 December 1998 External T.I. 9823575 - DISTRIBUTION OF UNION FUNDS PRIOR TO AMAL.

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 distribution by a union to its members is taxable. The union is involved in an amalgamation. Should the net worth per member of members of one union be greater than that of members of the other union, the particular union will distribute the excess net worth to its members prior to the amalgamation.

Position: We would first have to consider whether any part of the distribution is simply a reimbursement of current-year fees. Union members receiving amounts out of such a distribution would have taxable capital gains as a result of the distribution.

Reasons: A reimbursement of current-year fees would simply reduce an employee’s deductible amount under subparagraph 8(1)(i)(iv). Otherwise, we consider the distribution of funds in the situation to represent proceeds of disposition of the recipients’ rights in the particular union. We are also of the view that each such right has an adjusted cost base of zero.

XXXXXXXXXX 		J. Gibbons
			5-982357
December 1, 1998

Dear XXXXXXXXXX:

We are replying to your letter of July 21, 1998, in which you requested our comments concerning a hypothetical situation involving the amalgamation of two unions. Should the net worth per member of one of the unions be greater than the net worth per member of the other union, the particular union will distribute the excess net worth to its members prior to the amalgamation. You inquire as to the income tax consequences of such a distribution. You believe that such a distribution would represent income to the members and that the union should report this event as a refund of union dues.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

In answer to your question, we would first have to consider whether any part of the distribution is simply a reimbursement of current-year fees. Such a reimbursement would simply reduce an employee’s deductible amount under subparagraph 8(1)(i)(iv). Otherwise, we are of the view that the amounts distributed would likely represent “proceeds of disposition,” as that term is defined under section 54 of the Act, of the recipients’ rights in the particular union. We are also of the view that each such right has an adjusted cost base of zero. Accordingly, union members would be considered to have earned a capital gain as a result of receiving amounts out of such a distribution.

We trust that these comments will be of assistance.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate