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 non-share corporation to be established by provincial statute to set up a compensation fund for the purpose of compensating persons who have sustained losses as a result of wrongful or dishonest dealings by licensed real estate agents would be organized as a non-profit organization for the purposes of paragraph 149(1)(l).
Position:
Yes, based on the facts presented.
Reasons:
To qualify as a non-profit organization, the corporation must also operate exclusively for any purpose except profit. This is a question of fact which must be determined on an ongoing basis.
XXXXXXXXXX 991264
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the XXXXXXXXXX.
You advise that to the best of your knowledge and that of the XXXXXXXXXX, none of the issues involved in the ruling request is:
I. in an earlier return of the XXXXXXXXXX or a related person;
II. being considered by a taxation services office or a taxation centre in connection with a previously filed tax return of the XXXXXXXXXX or a related person;
III. under objection by the XXXXXXXXXX or a related person;
IV. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
V. the subject of a ruling previously issued by the Directorate.
In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:
a) "Corporation" means the XXXXXXXXXX,
b) "Fund" means the XXXXXXXXXX,
c) "Licensee" means a person licensed under the Real Estate Act, and
d) "Superintendent" means the Superintendent of Real Estate.
Our understanding of the facts, proposed transactions and their purposes is set out below.
FACTS
1. The Real Estate Act (XXXXXXXXXX) provides, among other things, for the licensing of persons involved in real estate transactions. There are three categories of licensee: agent, salesperson and nominee. A salesperson is an individual who is employed by an agent. A nominee is an individual who represents a corporation or a partnership that has an agent's licence.
2. The XXXXXXXXXX is a statutory body that has been continued by the Real Estate Act. It has various responsibilities relating to the regulation of real estate agents, salespersons and nominees inXXXXXXXXXX, including the issue, transfer and renewal of licences and the conduct of disciplinary hearings.
3. Every holder of an agent's licence is required to maintain security for the payment of any damages or compensation for which the agent becomes liable by reason of wrongful or dishonest dealing or the misappropriation or wrongful conversion of money or other property. The Bonding Regulations under the Bonding Act (XXXXXXXXXX) specify the amount of security to be provided and list certain actions and failures that are encompassed by the expression "wrongful or dishonest dealing". The Bonding Regulations also specify the types of security that are acceptable.
4. The Bonding Act provides that the Government of XXXXXXXXXX holds a bond in trust for the persons who establish rights to recover on the bond. It also gives a person a right of action for payment under the bond if the person has a right of action against the bonded person because of a failure against which the bond provides security.
PROPOSED TRANSACTIONS
5. It is proposed that the Fund be established to replace the existing bonding requirement for licensed agents under the Real Estate Act.
6. XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
10. XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. There is no provision in XXXXXXXXXX that would allow income of the Corporation to be paid to, or otherwise made available for the personal benefit of, any of its members, except possibly in the form of remuneration.
14. There is no provision in XXXXXXXXXX to provide for the dissolution or winding-up of the Corporation. You advise that a legislative amendment to the Real Estate Act would likely be required to deal with the distribution of assets.
15. You advise that the Corporation will be operated for the same purpose for which it is organized, namely to compensate members of the public.
PURPOSE OF PROPOSED TRANSACTIONS
16. The purpose for establishing the Corporation and the Fund is to provide a new mechanism for compensating members of the public who suffer a loss as a result of wrongful or dishonest dealings by real estate agents and salespersons.
RULING GIVEN
Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that all the proposed transactions are implemented as described above, we confirm the following:
The Corporation will be considered to an association organized exclusively for a purpose other than profit with no part of its income payable to or otherwise available for the personal benefit of any member so that, in any year in which it, in fact, operates on such basis, the Corporation will qualify as a non-profit organization as described in paragraph 149(1)(l) of the Act and will, accordingly, be exempt from tax under Part I of the Act on its taxable income for that year.
We note that the question of whether a corporation does, in fact, operate exclusively for any purpose other than profit with no part of its income payable to or otherwise available for the benefit of any member or shareholder is a question of fact which must be determined on an ongoing basis. In this case, the build-up in the Fund and the methodology used in determining the level of assessments will be significant factors in making this determination.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996 and is binding on Revenue Canada provided the transactions are carried out by XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1999
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© Sa Majesté la Reine du Chef du Canada, 1999
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