Principal Issues: [TaxInterpretations translation] (1) Is an amount received by virtue of an allocation in respect of "consumer goods or services" as defined in subsection 135(4) an amount that is required to be included in computing the income of a taxpayer?
(2) Does a co-operative have to issue a T4A slip to all members when it makes an "allocation in proportion to patronage"?
Position: (1) No, this type of rebate is not taxable.
(2) Yes, it must issue a T4A slip if source deductions were made or if the total of all payments made to the taxpayer in the year exceeds $500.
Reasons: (1) 135(7)
(2) 218 ITR and Employers' Guide RC4157
XXXXXXXXXX 2010-036400 Catherine Ayotte, Notary, M.Fisc.
December 9, 2010
Dear Madam,
Subject: Taxation of dividends
This is further to your letter of April 20, 2010, in which you asked for our comments regarding the requirement for a co-operative to issue a T4A slip where it makes a payment pursuant to an "allocation in proportion to patronage" and also regarding the taxation of such payments received by a taxpayer.
Please note that, unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act; and all references to the "Regulations" are to the Income Tax Regulations.
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As stated in Information Circular 70-6R5, 2002, it is not the practice of the Directorate to comment on proposed transactions otherwise than through advance income tax rulings. If your situation involved specific taxpayers a transaction, 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 that may be helpful to you.
For present purposes, we have assumed that the payments are made as an "allocation in proportion to patronage" as defined in subsection 135(4).
As indicated in paragraph 14 of IT-362R, Patronage Dividends (footnote 1), subsection 135(7) provides that all payments made pursuant to an "allocation in proportion to patronage" that are received by a taxpayer and that are not a distribution in respect of "consumer goods or services" are included in computing the taxpayer's income for the taxation year in which they are received. The term "consumer goods or services" is defined in subsection 135(4) as goods or services the cost of which was not deductible by the taxpayer in computing the income from a business or property. Generally, those goods or services are for the personal consumption of the customer rather than for carrying on a business. The determination of the deductibility to a taxpayer of a good or service is specific to each individual and must be analyzed on a case-by-case basis. Consequently, it will generally be the taxpayer who receives the dividend who will be able to make that determination.
Section 218 of the Regulations requires every person who, within the meaning of section 135, makes payments to residents of Canada pursuant to an allocation in proportion to patronage shall make an information return in prescribed form in respect of payments so made. In this situation, the prescribed form is the T4A slip. In addition, Employers' Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary (footnote 2), states that the payer of an "allocation in proportion to patronage" should complete a T4A slip only where the total of all payments made to a taxpayer in the year is more than $500 or where tax has been withheld from a payment. That instruction applies regardless of the amount that will be required to be included under subsection 135(7) in computing the income of the taxpayer who received the payments.
Subsection 135(3) specifies that a taxpayer who makes a payment pursuant to an "allocation in proportion to patronage” to a person who is resident in Canada and who is not exempt from tax under section 149 must deduct or withhold an amount equal to 15% of the amount of the payments in excess of $100.
Finally, as indicated on the back of the T4A slip, where the amount or part of the amount shown on the T4A slip provided by the payer represents an allocation for "consumer goods or services," the taxpayer who receives that payment does not have to include that amount in computing income.
We hope that our comments are of assistance.
Best regards,
Louise J. Roy, C.G.A.
Manager, Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
FOOTNOTES
1 Available on the CRA internet site at the following address: http://www.cra-arc.gc.ca/E/pub/tp/it362r/it362r-f.html .
2 See section: Is this guide for you? Available on the CRA internet site at the following address: Ehttp://www.cra-arc.gc.ca/E/pub/tg/rc4157/rc4157-10f.pdf .