Principal Issues: Whether an organization is exempt from tax under Part 1 throughout a taxation year by virtue of paragraph 149(1)(d) or 149(1)(d.1) of the Income Tax Act.
Position: General comments only.
Reasons: Question of fact.
XXXXXXXXXX 2009-031063 Sylvie Danis (613) 957-3496 July 3, 2009
Dear XXXXXXXXXX :
Re: Technical Interpretation regarding paragraphs 149(1)(d) and 149(1)(d.1) of the Income Tax Act
This is in response to your fax dated February 17, 2009 requesting guidance on whether an organization is exempt from tax under Part I throughout a taxation year by virtue of paragraph 149(1)(d) or 149(1)(d.1) of the Income Tax Act (the "Act").
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to provide determinations with respect to factual situations involving specific taxpayers, except in the context of an advance income tax ruling with respect to proposed transactions, submitted in a manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings". Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
Where all of the shares or all of the capital of a corporation are owned by Her Majesty in right of Canada or Her Majesty in right of a province, and subsection 149(1.1) and proposed subsection 149(1.3) of the Act do not apply, no tax is payable under Part I of the Act on the taxable income of the corporation by virtue of paragraph 149(1)(d) of the Act. Paragraph 149(1)(d.1) of the Act provides that where not less than 90% of the shares or capital of the corporation are owned by Her Majesty in right of Canada or a province, the corporation will be exempt from taxation under Part I.
Paragraph 149(1.3)(b) of the Act, if enacted as proposed, will preclude the application of any of paragraphs 149(1)(d) to (d.6) of the Act to a corporation if it can be shown that any person (or a group including any person) other than a municipality, Her Majesty in right of Canada or a province, or a municipal or public body performing a function of government in Canada, controls the corporation directly or indirectly in any matter whatever, that is, if any such person or group has de facto control of the corporation. Subsection 149(1.1) of the Act provides that for the purpose of determining the 100% and 90% ownership tests in paragraphs 149(1)(d) to 149(1)(d.6) of the Act any right to acquire shares or capital of a corporation should be considered as though the right had been exercised.
The word "capital", as used in paragraph 149(1)(d) or 149(1)(d.1) of the Act, is not defined in the Act. In our opinion, the determination of the ownership of capital of a non-share corporation is a question of fact, which necessitates a review of all the relevant documents such as articles of incorporation, by-laws and agreements relating to control of the corporation and its assets.
Finally, it is our view that where an organization is a registered charity under paragraph 149(1)(f) of the Act and it satisfies the conditions under paragraph 149(1)(d) or 149(1)(d.1) of the Act, the organization is exempt from tax under paragraph 149(1)(f) and paragraph 149(1)(d) or 149(1)(d.1) of the Act, as the case may be.
We trust the above comments are of assistance. However, as stated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch