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: Winding-up of an NPO and the incorporation of a new NPO. Does the NPO being wound-up continue to retain its status as a NPO? Would the new corporation be a NPO?
Position: Question of fact but based on established facts a qualified yes to both.
Reasons: The law.
XXXXXXXXXX
XXXXXXXXXX 983314
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
This is in reply to your letter dated XXXXXXXXXX, and your subsequent correspondence requesting an advance income tax ruling on behalf of XXXXXXXXXX.
You have advised that, subject to the following, to the best of your knowledge, and that of all the taxpayers involved, none of the issues raised in this letter are being considered by any Tax Service Office (“TSO”) and/or Taxation Centre in connection with any tax return already filed by the taxpayers, or any person related to the taxpayers, nor are any of these issues under objection, appeal, or before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not expired.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th Suppl.) c.1, as amended from time to time and consolidated to the date of this letter (herein referred to as the "Act").
FACTS
1. XXXXXXXXXX was constituted under XXXXXXXXXX as a non-profit corporation incorporated without share capital. Pursuant to XXXXXXXXXX enabling documents it was created for the sole purpose of XXXXXXXXXX. Under XXXXXXXXXX enabling documents no income can be paid to or for the personal benefit of any member. XXXXXXXXXX head office is located in XXXXXXXXXX and its Revenue Canada business account number is XXXXXXXXXX files its federal income tax returns with the XXXXXXXXXX Taxation Centre and otherwise deals with the XXXXXXXXXX TSO.
2. XXXXXXXXXX was constituted under the XXXXXXXXXX as a non-profit corporation. Pursuant to XXXXXXXXXX enabling documents, XXXXXXXXXX has objects oriented on providing XXXXXXXXXX. The Internal Revenue Service (“IRS”) considers XXXXXXXXXX to be a tax exempt charity for U.S. income tax purposes and issued XXXXXXXXXX a certification letter to this effect dated XXXXXXXXXX head office is located in XXXXXXXXXX.
3. You advise that XXXXXXXXXX is considered a resident of the United States of America (“U.S.”) for U.S. income tax purposes and there has not been any change in XXXXXXXXXX status as a tax exempt charity for U.S. income tax purposes.
4. In XXXXXXXXXX entered into a XXXXXXXXXX agreement with XXXXXXXXXX (the “Agreement”) under which XXXXXXXXXX.
5.
XXXXXXXXXX
6.
XXXXXXXXXX
- XXXXXXXXXX
- XXXXXXXXXX
- XXXXXXXXXX
The General Director of XXXXXXXXXX is invited to attend all meetings of the Board but does not have any voting rights.
7. The Board is responsible to cooperate and maintain a good a relationship with XXXXXXXXXX to ensure that XXXXXXXXXX activities abide by the structures of XXXXXXXXXX and serves faithfully the areas, districts, groups and members in accordance with XXXXXXXXXX.
8. Based on the information contained in XXXXXXXXXX last available audited financial statements, dated XXXXXXXXXX, it had total net assets of approximately $XXXXXXXXXX (primarily made up of inventory and short term investments) and an operating deficit for the year then ended of approximately $XXXXXXXXXX.
9. You advise that based on XXXXXXXXXX stated objects and operations, as briefly described above, it is your view that XXXXXXXXXX is a "non-profit organization" as that term is defined in paragraph 149(1)(l) and, as a consequence, is exempt from tax under Part I.
Recently Completed Transactions
10. In anticipation of the expected cancellation of the existing Agreement between XXXXXXXXXX and assumption of all the activities currently carried on by XXXXXXXXXX by a new corporation you advise that certain transactions/events have been undertaken in advance of the proposed transactions.
11. A new corporation (“Newco”) was created under XXXXXXXXXX as a non-profit corporation without share capital. Pursuant to Newco’s enabling documents Newco was created for the sole purpose of XXXXXXXXXX.
12. Under Newco’s enabling documents no part of Newco’s income, if any, shall be paid, payable or otherwise made available for the personal benefit of any member and in the event Newco is to be wound-up, amalgamated or dissolved all of its property must be transferred to an organization having similar goals or objects as Newco and which would qualify under paragraph 149(1)(l) as an non-profit organization at that time.
13. Since XXXXXXXXXX letters patent were silent with respect to its winding-up, amalgamation or dissolution the Board passed a resolution to provide that if XXXXXXXXXX is to be wound-up, amalgamated or dissolved all of its property must be transferred to an organization having similar goals or objects to XXXXXXXXXX and which would qualify under paragraph 149(1)(l) as an non-profit organization at that time.
14. XXXXXXXXXX Board then passed a resolution to provide that all of XXXXXXXXXX property will be transferred to Newco and that XXXXXXXXXX will be dissolved after the transfer of such property to Newco as described below.
PROPOSED TRANSACTIONS
15. XXXXXXXXXX and Newco will enter into a purchase and sale agreement whereby XXXXXXXXXX will agree to transfer all its property to Newco. As consideration for the transfer of such property XXXXXXXXXX will receive $XXXXXXXXXX from Newco and Newco will assume all the outstanding liabilities owing by XXXXXXXXXX at that time. Under the terms of the purchase and sale agreement Newco will also assume all of XXXXXXXXXX current personnel and lease of premises.
16. XXXXXXXXXX will then terminate the Agreement with XXXXXXXXXX.
17. XXXXXXXXXX and Newco will enter into a new XXXXXXXXXX agreement (the “New Agreement”) that will, in all respects, have terms that are identical to the Agreement between XXXXXXXXXX. Under the terms of the New Agreement XXXXXXXXXX will grant Newco a revocable license XXXXXXXXXX.
18. You advise that Newco’s bylaws will be drafted to reflect the fact that Newco must be operated on a not-for profit basis. The sale price of the XXXXXXXXXX materials will be based on a recovery of Newco's costs.
19. Newco will receive no fees from XXXXXXXXXX. Any fees paid to Newco by XXXXXXXXXX for such services will be based on a recovery of Newco's costs.
20. After all the above steps have been completed XXXXXXXXXX will be wound-up and dissolved as soon as possible.
PURPOSE OF THE PROPOSED TRANSACTIONS
21. XXXXXXXXXX decided that it would have to terminate the Agreement with XXXXXXXXXX following serious disagreements between
XXXXXXXXXX
RULINGS GIVEN
Provided the foregoing statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions we confirm the following:
A. Provided XXXXXXXXXX is a non-profit organization as defined under paragraph 149(1)(l) the transfer of all its property to Newco, as described in 15 above, will not, by itself, cause us to consider that XXXXXXXXXX has ceased to meet the conditions described in paragraph 149(1)(l) at that time.
B. Newco will be considered to be an association organized exclusively for a purpose except profit provided, as described in 12, no part of its income is 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, Newco will qualify as a non-profit organization as described in paragraph 149(1)(l).
The above Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and are binding on Revenue Canada provided that the proposed transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
5
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