Principal Issues: [TaxInterpretations translation] 1) What are the tax consequences of winding up an agricultural cooperative?
2) Should slips be issued?
Position: 1) The distribution will probably be subject to the winding up rules.
2) If subsection 84(2) applies, T5 slips will have to be issued.
Reasons: 1) An agricultural cooperative is a corporation and members' portions are generally shares (see definition in section 248).
2) Legislation
XXXXXXXXXX 2010-037536 Catherine Ayotte, Notary, M.Fisc.
September 21, 2011
Dear Madam,
Subject: Winding up of an agricultural cooperative
This is in response to your letter of July 19, 2010 in which you asked us for information regarding the taxation of the assets that are distributed to the members upon the winding up of an agricultural cooperative.
Please note that, unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act.
As stated in Information Circular 70-6R5, 2002, it is not the practice of the Directorate to comment on proposed transactions involving specific taxpayers otherwise than through advance income tax rulings. If your situation involved specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we can offer the following general comments which may be helpful to you.
Facts
We understand that your question concerns the winding up of an agricultural cooperative within the meaning of subsection 135.1(1) and that, in those circumstances, it is possible for such a cooperative to distribute the balance of its assets to its members. That distribution of assets to the members does not satisfy the definition of "allocation in proportion to patronage” in subsection 135(4).
Our Comments
An agricultural cooperative is a legal person under article 3 of the Cooperatives Act, RSQ, c. C-67.2. and is, consequently, a corporation within the meaning of subsection 248(1). In addition, shares of the capital stock of a cooperative corporation are generally considered to be shares under subsection 248(1).
Provided that the distribution of property to members is not connected to tax deferred cooperative shares within the meaning of subsection 135.1(1) (footnote 1), we are of the view that the general rules relating to winding ups apply to determine the tax consequences of such distribution to members. Thus, it is possible that subsection 84(2) applies in order to deem the corporation to have paid a dividend and to deem the shareholders (members) to have received a dividend. For more information on situations where subsection 84(2) applies, you can refer to Interpretation Bulletin IT-126R2 Meaning of 'Winding up' which is available on the CRA's website at the following address: http://www.cra-arc.gc.ca/E/pub/tp/it126r2/READ-ME.html.
Where a dividend is deemed to be paid as a result of the application of subsection 84(2), a T5 Statement of Investment Income must be completed by the corporation. For more information, please refer to the T4015 T5 Return of Investment Income (T4015), which is available on the CRA's website at http://www.cra- arc.gc.ca/E/pub/tg/t4015/READ-ME.html
We hope that our comments are of assistance.
Best regards,
Louise J. Roy, C.G.A.
Manager of the Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Subsection 135.1(8) states that subsections 84(2) and (3) do not apply to a tax deferred cooperative share.