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: Tax treatment of disbursements made to Union and Employer's Association on wind up of training trust fund?
Position: Question of fact whether the exemption in subsection 149(1) of the Act applies.
Reasons: IT-496. Paragraph 149(1)(k) & 149(1)(l) of the Act.
XXXXXXXXXX 992328
Wm. P. Guglich
Attention: XXXXXXXXXX
November 2, 1999
Dear Sirs:
Re: XXXXXXXXXX (the "Fund")
This is in reply to your letter of August 26, 1999, requesting our views regarding the tax treatment to the recipients on the winding-up of the Fund.
You described the following situation:
The Fund is in the process of winding up its affairs. After the winding down costs are paid the Trustees of the Fund intend to distribute the remaining funds to the Union and the Employers Association (a non-profit entity).
It is your opinion that such a disbursement would not be taxable in the hands of the recipients for the following reasons:
a) Unions are non-taxable entities;
b) The Employers Association is funded by taxable corporations. Contributions to the Association would therefore, be a deductible expenditure for tax purposes to the contributors. Since the Association will not refund the distribution to the contributing employers, the infusion of the Trust Funds will simply reduce the future amount required from the employers to fund the Employers Association. Accordingly, it is your view that the receipt of funds would not be taxable to the Association.
In your letter, you have outlined an actual fact situation related to an actual proposed transaction and, therefore, we bring to your attention Information Circular 70-6R3, dated December 30, 1996, issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. However, as stated in paragraph 15(j) of IC70-6R3, an advance income tax ruling will not be issued when the matter on which a determination is requested is primarily one of fact and the circumstances are such that all the pertinent facts cannot be established at the time of the request. Nevertheless, we offer the following general comments.
Subsection 149(1) of the Income Tax Act (the "Act") provides exemption from tax to a person described therein. It is a question of fact whether a taxpayer meets the conditions to qualify, in a particular year, for exemption from tax under subsection 149(1) of the Act. The determination must be based on the facts of each case which can be obtained only by reviewing all the activities for the year. Such a determination cannot be made in advance of or during a particular year but only after the end of the year.
The taxable income of an employee's union may be exempt from tax pursuant to Paragraph 149(1)(k) of the Act, provided the union qualifies as a labour organization or society or a benevolent or fraternal benefit society.
The Employers Association may qualify for exemption from tax in a particular year provided it meets the conditions described in paragraph 149(1)(l) of the Act. Interpretation Bulletin IT-496, Non-profit Organizations, comments on some of the factors that are considered when determining whether a taxpayer is, in a particular year, exempt from tax pursuant to paragraph 149(1)(l) of the Act.
We trust our comments will be of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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