Subsection 137(4.1) - Payments in respect of shares
Administrative Policy
2014 Ruling 2014-0530371R3 - Combination of credit unions
Proposed transactions
Acquireco and Targetco, both of which are widely-held credit unions, wish to combine their businesses to form a single corporate entity by way of an asset sale governed by section XX of Act1. Accordingly:
- At XX on the Effective Date: each class A and class C Share of Targetco will be exchanged for one class A and one Class D Share, respectively, of Acquireco; and each class D Share of Targetco will be redeemed for cash.
- At XX on the Effective Date as part of its winding-up, Targetco will transfer to Acquireco all its property.
- Upon receipt of the executed Agreement for the above share exchange and asset distribution, the Registrar will issue a Certificate of Business Acquisition pursuant to paragraph XX of Act1 showing that, on the Effective Date, Acquireco will have acquired the assets and assumed the liabilities of Targetco.
- Targetco will be deemed to have been dissolved on the Effective Date pursuant to section XX of Act1.
Rulings
Including that s. "137(4.1) will not apply to deem an amount paid or payable by Targetco to Acquireco in respect of a share of its capital stock on the Winding-Up to have been paid by Targetco and received by Acquireco as interest." The summary states:
Acquireco will not become a member of Targetco, as...defined in subsection 137(6), at any point in time during the process leading to Targetco' dissolution.
See summary under s. 88(1).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 85.1 - Subsection 85.1(1) | credit union share-for-share exchange/ cash redemption | 52 |
| Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) | "immediately before" referenced share ownership on completion of the preceding transaction in a same-day series | 268 |
Subsection 137(6)
Allocation in Proportion to Borrowing
Administrative Policy
28 October 2020 External T.I. 2019-0824091E5 - Members of a credit union of the same class
Would payments made to members of one branch of a credit union be considered payments to “members of the credit union of the same class” for purposes of the definitions of “allocation in proportion to borrowing” and “bonus interest payment” in s. 137(6)?
After noting that s. 137(2) “generally allows a credit union to deduct the total of (i) bonus interest payments, and (ii) payments pursuant to allocations in proportion to borrowing, made by the credit union within the year or within 12 months thereafter, to members of the credit union, to the extent that such payments were not deductible in the immediately preceding taxation year,” CRA referenced the “bonus interest payment” and “allocation in proportion to borrowing” definitions, and stated:
Subsection 137(6) of the Act defines a “member” of a credit union and includes a person who is recorded as a member on the records of the credit union and is entitled to participate in and use the services of the credit union. The Act does not provide any guidance as to what constitutes a class of taxpayer. However, it is our understanding that membership (including membership classes) in a credit union is generally governed by the credit union’s relevant incorporating documents/by-laws established in accordance with the relevant credit union statute.
… [W]here a particular class of member is determined, the deduction for a taxation year under subsection 137(2) of the Act by a credit union for bonus interest payments or payments pursuant to allocations in proportion to borrowing, as the case may be, requires such bonus interest payments or allocations in proportion to borrowing to be credited to all taxpayers who were members of that particular class in the year.
Subsection 137(7) - Credit union not private corporation
Administrative Policy
5 September 2013 Internal T.I. 2013-0487491I7 - Eligible dividends - credit unions
Is a credit union that is a CCPC required to file a T2SCH53 (GRIP calculation)? CRA stated that although the credit union may have benefited from the small business deduction is not treated (in light of s. 137(7) as a private corporation (and thus a CCPC) for the purpose of the eligible dividend rules. CRA went on to note that in light of s. 137(4.1) a payment by a credit union to its members in respect of the shares of its capital stock would not normally result in dividend treatment.