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:
Is XXXXXXXXXX ("X Co") organized as non-profit organization as described in paragraph 149(1)(l) (XXXXXXXXXX)?
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
XXXXXXXXXX
X Co is organized as an NPO as described in paragraph 149(1)(l) for the following reasons:
-X Co's By-Laws essentially provide that X Co will operate as a cost recoverable independent enterprise, and that it may set its fees in such a manner as to ensure that its fees for XXXXXXXXXX contribute substantially to the recovery of all costs XXXXXXXXXX, including all debt service costs, if any, and provide for X Co's future operations, including the establishment of a contingency fund which may be deemed necessary in the commercial management of its affairs. The fact that an NPO may have a reserve or contingency fund does not, in itself, disqualify the NPO (position in other files and in ITTN #4, and paragraphs 8 and 9 of IT-496). In general terms, a contingency fund will not disqualify an otherwise qualifying NPO, if the fund is reasonable and reflects the NPO's operational requirements in carrying on its non-profit activities (such a determination, of course, is a question of fact). The ruling provided as a fact that any contingency fund which would be established by X Co, in accordance with its By-Laws, would be reasonable and reflect X Co's operational requirements in carrying on its non-profit activities.
-XXXXXXXXXX of the Letters Patent provides that X Co is to carry on its operations without pecuniary gain to its member, none of its profits shall be paid to or otherwise benefit the directors and any profits or other accretions to X Co are to be used in promoting its objects.
-X Co will not be competing with taxable entities.
XXXXXXXXXX of X Co's Letters Patent provides that, in the event of dissolution or winding-up of X Co, all its remaining assets after payment of its liabilities and obligations shall revert to Y Co (an NPO), who is X Co's sole member. However, one of the requirements of paragraph 149(1)(l) is that no part of the organization's income must be payable or otherwise available for the personal benefit of any of its members. The Department's stated position is that an organization will not qualify under paragraph 149(1)(l), if the organization can distribute income to a member on winding-up, even though the member may itself be exempt under paragraph 149(1)(l) or any other provision of the Act. In order to meet this requirement of paragraph 149(1)(l), the proposed transactions provide that X Co will obtain Supplementary Letters Patent (the request for the Supplementary Letters Patent and related By-Law were submitted) amending XXXXXXXXXX of the Letters Patent to specifically provide that, in the event of dissolution or winding-up of X Co, all its remaining assets after payment of its liabilities and obligations shall be distributed to one or more organizations with similar objects in Canada. The proposed transactions also specify that none of these organizations will be a member of X Co.
XXXXXXXXXX 3-972034
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX ("X Co"). We also acknowledge your letters of XXXXXXXXXX.
To the best of your knowledge and that of the taxpayer involved, none of the issues involved in the requested rulings is being considered by a Tax Services Office or a Tax Centre in connection with an income tax return already filed and none of the issues is under objection or appeal.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1.X Co was incorporated on XXXXXXXXXX under Part II of the Canada Corporations Act as a corporation without share capital. Its purpose is to
XXXXXXXXXX
X Co's financial year-end is XXXXXXXXXX. X Co's address is
XXXXXXXXXX
2.The objects of X Co, as stated in XXXXXXXXXX of the Letters Patent, are to
XXXXXXXXXX
3.XXXXXXXXXX of the Letters Patent provides that X Co is to carry on its operations without pecuniary gain to its member, none of its profits shall be paid to or otherwise benefit the directors and any profits or other accretions to X Co are to be used in promoting its objects.
4.The recitals to By-Law XXXXXXXXXX of X Co state that the activities of X Co, in carrying out its objects, will, without limitation, include:
XXXXXXXXXX
Any contingency fund which would be established in accordance with (iv) above, would be reasonable and reflect X Co's operational requirements in carrying on its non-profit activities.
5.XXXXXXXXXX of the By-Laws of X Co limits membership in X Co to the XXXXXXXXXX ("Y Co").
6.XXXXXXXXXX of the By-Laws provides that the Board of Directors of X Co will consist of XXXXXXXXXX directors, a majority of whom shall be resident Canadians, subject to the following:
(i)all Directors shall be appointed by Y Co;
(ii)one of the said Directors shall be appointed from a list of names provided to Y Co by XXXXXXXXXX;
(iii)three of said Directors shall be unrelated to XXXXXXXXXX; and
(iv)one of the said Directors shall be the individual who, from time to time, is appointed by the Board of Directors as President.
7.XXXXXXXXXX of the By-Laws provides that the Directors, other than the President, shall be entitled to reasonable remuneration and expenses, in respect of attendance at certain meetings or for the performance of their duties and responsibilities. However, no Director shall directly or indirectly receive any profit from his position as such. XXXXXXXXXX provides that the Board of Directors may fix a reasonable remuneration for all officers, agents and employees of X Co including the President.
8.XXXXXXXXXX of the Letters Patent states that it is specially provided that in the event of dissolution or winding-up of X Co, all its remaining assets after payment of its liabilities and obligations shall revert to Y Co.
9.Y Co is a non-profit organization exempt from Part I tax pursuant to paragraph 149(1)(l) of the Income Tax Act (the "Act"). The voting membership of Y Co presently consists of XXXXXXXXXX.
10.XXXXXXXXXX of the By-Laws provides that the By-Laws of X Co not embodied in the Letters Patent may be repealed or amended by By-Law enacted by the Board of Directors by not less than XXXXXXXXXX per cent of all Directors and sanctioned in writing by Y Co, provided that the repeal or amendment of such By-Laws shall not be enforced or acted upon until the approval of XXXXXXXXXX has been obtained.
11.X Co is not a charity within the meaning assigned by subsection 149.1(1) of the Act.
PROPOSED TRANSACTIONS
12.X Co will acquire the assets used in
XXXXXXXXXX
13.X Co will obtain Supplementary Letters Patent amending XXXXXXXXXX of the Letters Patent to specifically provide that in the event of dissolution or winding-up of X Co, all its remaining assets after payment of its liabilities and obligations shall be distributed to one or more organizations with similar objects in Canada. None of these organizations will be a member of X Co.
14. XXXXXXXXXX
15.X Co will provide
XXXXXXXXXX
PURPOSE OF PROPOSED TRANSACTIONS
16.The purpose of the proposed transactions is to
XXXXXXXXXX
RULINGS
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, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A.X Co will be considered to be an association organized exclusively for any other purpose except 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 that basis, (this being a matter on which we do not rule since it is a question of fact the determination of which can only be made retrospectively for each taxation year) it will qualify for that year as a non-profit organization under paragraph 149(1)(l) of the Act, and will be exempt form Part I tax upon its, otherwise, taxable income.
B.For any taxation year throughout which X Co is exempt from Part I tax under paragraph 149(1)(l) of the Act, it will be exempt from Part I.3 tax by virtue of paragraph 181.1(3)(c) of the Act.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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