2006 Ruling 2005-0160521R3 - Provincially established - Public body

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.

Principal Issues: Would the particular corporation be considered a public body performing a function of government for purposes of paragraph 149(1)(c) of the Act?

Position: yes

Reasons: In the circumstances, the corporation can be considered a public body for the following reasons: (1) it is a non-share capital corporation, established and governed by a specific provincial Act of Parliament; (2) its board of directors consists of individuals who are publicly-elected municipal officials and the remaining directors must be appointed by the Lieutenant Governor in Council of the province; (3) it is accountable to the public on an annual basis; (4) the provincial government is responsible for providing the funding to this organization to allow it to meet its objectives; (5) upon wind-up of the organization, any remaining assets will be returned to the particular municipalities; and (6) the provincial government retains the ultimate power to demand repayment of any remaining funding at any time. In addition, the organization's mandate is to further the provincial promise to promote economic development and social stability in the specific regions - as such, it is performing a function of government for purposes of 149(1)(c).

XXXXXXXXXX 								2005-016052

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge your subsequent submissions of XXXXXXXXXX and the information provided during our telephone conversations (XXXXXXXXXX).

We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:

(i) in an earlier return of the taxpayer or a related person,

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,

(iii) under objection by the taxpayer or a related person,

(iv) before the courts, or

(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

FACTS

1. XXXXXXXXXX

2. XXXXXXXXXX

3. XXXXXXXXXX established a new corporation known as the XXXXXXXXXX (the "Corporation"). The Corporation is incorporated without share capital and XXXXXXXXXX, the Corporation is not an agent of the Crown.

4. The Corporation's mailing address is XXXXXXXXXX. It has yet to file any income tax returns but expects to be serviced by the XXXXXXXXXX Tax Centre.

5. XXXXXXXXXX provides for a grant in the amount of $XXXXXXXXXX to be paid to the Corporation by the government of XXXXXXXXXX. This grant was paid to the Corporation in its XXXXXXXXXX fiscal year. The XXXXXXXXXX further provides for the possibility of an additional one-time allocation payment to the Corporation, where the total of this payment cannot exceed $XXXXXXXXXX.

6. As provided by the XXXXXXXXXX, the Corporation's mission statement is "XXXXXXXXXX". As such, the Corporation's role is to support investment, through grants and business loans, in the following sectors of the economy in each of the XXXXXXXXXX specified regions:

XXXXXXXXXX

7. The Corporation established the following separate accounts, pursuant to the XXXXXXXXXX, for purposes of managing the capital contribution by the government of XXXXXXXXXX as described in 5 above:

• an operating endowment account of $XXXXXXXXXX, the principal of which must be retained and invested for purposes of earning investment income for future use;
• a regional account for each of the XXXXXXXXXX regions described in 1 above, containing $XXXXXXXXXX for each region; and
• a cross regional account supporting investments benefiting all XXXXXXXXXX regions, containing $XXXXXXXXXX.

8. Any interest or other income earned from the investment of these funds is deposited into the account to which the capital is allocated, as described in 7 above.

9. The XXXXXXXXXX states that the Corporation may accept donations from the general public. Donated amounts will be deposited into region specific accounts. However, should the donee not specify a particular region, the donation will be deposited to the cross-regional account to benefit all regions equally.

10. The Corporation's board of directors (the "Directors") consists of XXXXXXXXXX members. XXXXXXXXXX of the XXXXXXXXXX Directors are appointed by the Lieutenant Governor in Council of XXXXXXXXXX. The Lieutenant Governor in Council reserves the right to remove and replace any individual appointed as Director of the Corporation on behalf of the province.

11. The remaining XXXXXXXXXX Directors are appointed by the XXXXXXXXXX (the "Committees") and consist of XXXXXXXXXX Directors from each of the XXXXXXXXXX regions referred to in 1 above. These XXXXXXXXXX Directors are XXXXXXXXXX elected officials. The Committees, as established by the XXXXXXXXXX, are made up of the XXXXXXXXXX, who have been elected by the regions. The Committees reserve the right to remove and replace any of the XXXXXXXXXX individuals appointed as Director of the Corporation in their capacity.

12. The Directors do not receive any compensation for their role as directors of the Corporation. They may however, be reimbursed for reasonable expenses incurred while performing their responsibilities.

13. For purposes of public accountability, XXXXXXXXXX requires the Corporation's Directors to prepare XXXXXXXXXX strategic plans including goals for each year relating to the fulfillment of this public initiative, in addition to publishing audited financial statements each year.

14. Upon wind-up or dissolution, the XXXXXXXXXX requires that any corporate assets remaining after satisfying all outstanding liabilities of the Corporation, are to be distributed to the XXXXXXXXXX of XXXXXXXXXX, as directed by the Corporation's Directors.

15. Further, XXXXXXXXXX states that the Lieutenant Governor in Council of the province may direct the Corporation to pay to the government of XXXXXXXXXX, any and all proceeds of the Corporation at any time.

PROPOSED TRANSACTIONS

16. As described in 5 above, the additional one-time allocation payment of $XXXXXXXXXX was paid to the Corporation XXXXXXXXXX. Of this amount, $XXXXXXXXXX of the funding allocation to the Corporation will be used to assist communities in XXXXXXXXXX. The remaining $XXXXXXXXXX will be used to increase the existing XXXXXXXXXX regional accounts, as described in 7 above, from $XXXXXXXXXX to $XXXXXXXXXX.

17. The Corporation will invest the funds provided by the government of XXXXXXXXXX to earn investment income. Specifically, the Corporation will earn interest income on temporary investments of capital for the separate regional accounts and on interest-bearing loans to public and private entities to develop infrastructure in the specific regions.

18. The Corporation does not intend to sell any goods or services, or to carry on any commercial business operation.

PURPOSE OF THE PROPOSED TRANSACTIONS

19. The purpose of the proposed transactions is to provide economic development and foster job opportunities to people of XXXXXXXXXX

RULING GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:

Because the Corporation is considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act, and therefore exempt from tax under Part I of the Act, no tax will be payable under Part I of the Act by the Corporation on any amounts included in its income as a result of the proposed transaction described in 17 above.

Comments

On February 27, 2004, the Department of Finance Canada released legislative proposals to amend certain provisions of the Act, including paragraph 110.1(1)(a) and subsection 118.1(1) of the Act (the "Proposed Amendments"). Section 110.1 of the Act permits a deduction in computing taxable income in respect of gifts made by corporations to registered charities and to certain other entities. The Proposed Amendments would expand the list of the recipient entities referred to in section 110.1 of the Act to include a public body performing a function of government in Canada. Section 118.1 of the Act provides for a charitable donations tax credit to individuals in respect of gifts made to registered charities and to certain other entities. The Proposed Amendments would also amend section 118.1 of the Act to expand the recipient entities referred to therein to include public bodies performing a function of government.

As stated in paragraph 20 of Information Circular 70-6R5, we do not provide advance income tax rulings on proposed legislation. Provided the Proposed Amendments pertaining to paragraph 110.1(1)(a) and subsection 118.1(1) of the Act are passed as released on February 27, 2004, it is our opinion that the Corporation would be entitled to issue donation receipts pursuant to the proposed addition of subparagraph 110.1(1)(a)(iv.1) to the definition of "charitable gifts" in subsection 110.1(1) of the Act and the proposed addition of paragraph (d.1) to the definition of "total charitable gifts" in subsection 118.1 of the Act.

The above advance income tax ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular IC 70-6R5, dated May 17, 2002, and is binding on the Canada Revenue Agency provided the proposed transactions are implemented before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch