RB.Day (613)957-2136
FEB 23 1989
Dear XXXX
We are writing in reply to your letter of December 16, 1988, wherein you requested that we confirm your interpretation of the Income Tax Act with respect to the three alternatives suggested in your letter with regard to the following factual situation.
Your client is non-profit organization (corporation) operating a golf course which was incorporated in Ontario several years ago without share capital. Members of the club paid $ 500 as an initiation fee (Life Membership) and are not entitled to receipt of annual income from the club. However, if the club assets were to be sold, they would receive a return of their fee and excess proceeds. The club has been active as a golf course and is still active as such to this date. The club has never distributed profits of any kind to the members of the club.
The club has received an offer for the sale of its land and buildings. Since there are already several golf courses in this area, the members have decided not to open another golf course.
Our comments
The Department does, generally, give interpretations of the Income Tax Act as they relate to the taxpayer enquiries we receive. Where, however, we are presented with a factual situation involving actual taxpayers and proposed transactions we are unable to provide assistance as to which of several courses of action can be taken in a tax planning situation, such as the one outlined in your letter.
We are, however, prepared to offer the following general comments regarding the three alternatives set out in your letter.
1. On the assumption that the disposition of the golf course's assets gives rise to a capital gain, it would involve a finding of fact with respect to each individual member, as to whether or not a particular member would be eligible for the capital gains exemption under subsection 110.6(3) of the Income Tax Act.
2. It is our opinion that subclause 89(1)(b)(i)(A(III) would cause the dividend paid to be an ordinary taxable dividend has suggested in your letter.
3 Since the golf course is being operated as a non-profit organization, all or substantially all of the fair market value of the assets of the organization could not be said to be used in a active business carried on primarily in Canada. The corporation would not, therefore, qualify as a "small business corporation" as defined in subsection 248(1). It follows, therefrom, that the shares of the corporation would not be "qualified small business corporation shares" as defined in subsection 110.6(1).
Yours truly,
A. GLEN THORNLEY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch