Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2015-08-30 and last amended on 2015-08-01. Previous Versions

Agricultural Cooperatives — Tax-deferred Patronage Dividends

Marginal note:Definitions
  •  (1) The following definitions apply in this section and section 135.

    “agricultural business”

    « entreprise d’agriculture »

    “agricultural business” means a business, carried on in Canada, that consists of one or any combination of

    • (a) farming (including, if the person carrying on the business is a corporation described in paragraph (a) of the definition “agricultural cooperative corporation”, the production, processing, storing and wholesale marketing of the products of its members’ farming activities); or

    • (b) the provision of goods or services (other than financial services) that are required for farming.

    “agricultural cooperative corporation”

    « coopérative agricole »

    “agricultural cooperative corporation” at any time means a corporation

    • (a) that was incorporated or continued by or under the provisions of a law, of Canada or of a province, that provide for the establishment of the corporation as a cooperative corporation or that provide for the establishment of cooperative corporations; and

    • (b) that has at that time

      • (i) as its principal business an agricultural business, or

      • (ii) members, making up at least 75% of all members of the corporation, each of whom

        • (A) is an agricultural cooperative corporation, or

        • (B) has as their principal business a farming business.

    “allowable disposition”

    « disposition admissible »

    “allowable disposition” means a disposition by a taxpayer of a tax deferred cooperative share less than five years after the day on which the share was issued if

    • (a) before the disposition,

      • (i) the agricultural cooperative corporation is notified in writing that the taxpayer has after the share was issued become disabled and permanently unfit for work, or termi­nally ill, or

      • (ii) the taxpayer ceases to be a member of the agricultural cooperative corporation; or

    • (b) the agricultural cooperative corporation is notified in writing that the share is held by a person on whom the share has devolved as a consequence of the death of the taxpayer.

    “eligible member”

    « membre admissible »

    “eligible member” of an agricultural cooperative corporation means a member who carries on an agricultural business and who is

    • (a) an individual resident in Canada;

    • (b) an agricultural cooperative corporation;

    • (c) a corporation resident in Canada that carries on the business of farming in Canada; or

    • (d) a partnership that carries on the business of farming in Canada, all of the members of which are described in any of paragraphs (a) to (c) or this paragraph.

    “tax deferred cooperative share”

    « part à imposition différée »

    “tax deferred cooperative share” at any time means a share

    • (a) issued, after 2005 and before 2021, by an agricultural cooperative corporation to a person or partnership that is at the time the share is issued an eligible member of the agricultural cooperative corporation, pursuant to an allocation in proportion to patronage;

    • (b) the holder of which is not entitled to receive on the redemption, cancellation or acquisition of the share by the agricultural cooperative corporation or by any person with whom the agricultural cooperative corporation does not deal at arm’s length an amount that is greater than the amount that would, if this Act were read without reference to this section, be included under subsection 135(7) in computing the eligible member’s income for their taxation year in which the share was issued;

    • (c) that has not before that time been deemed by subsection (4) to have been disposed of; and

    • (d) that is of a class

      • (i) the terms of which provide that the agricultural cooperative corporation shall not, otherwise than pursuant to an allowable disposition, redeem, acquire or cancel a share of the class before the day that is five years after the day on which the share was issued, and

      • (ii) that is identified by the agricultural cooperative corporation in prescribed form and manner as a class of tax deferred cooperative shares.

    “tax paid balance”

    « solde libéré d’impôt »

    “tax paid balance” of a taxpayer at the end of a particular taxation year of the taxpayer means the amount, if any, by which

    • (a) the total of

      • (i) the taxpayer’s tax paid balance at the end of the immediately preceding taxation year, and

      • (ii) the amount, if any, that is included in computing the taxpayer’s income under this Part for the particular taxation year because of an election described in subparagraph (2)(a)(ii),

    exceeds

    • (b) the total of all amounts each of which is the taxpayer’s proceeds of disposition of a tax deferred cooperative share that the taxpayer disposed of in the particular taxation year.

  • Marginal note:Income inclusion

    (2) In computing the income of a taxpayer for a particular taxation year, there shall be included under subsection 135(7), in respect of the taxpayer’s receipt, as an eligible member, of tax deferred cooperative shares of an agricultural cooperative corporation in the particular taxation year, only the total of

    • (a) the lesser of

      • (i) the total of all amounts, in respect of the taxpayer’s receipt in the particular taxation year of tax deferred cooperative shares, that would, if this Act were read without reference to this section, be included under subsection 135(7) in computing the taxpayer’s income for the particular taxation year, and

      • (ii) the greater of nil and the amount, if any, specified by the taxpayer in an election in prescribed form that is filed with the taxpayer’s return of income for the particular taxation year, and

    • (b) the amount, if any, by which

      • (i) the total of all amounts each of which is the taxpayer’s proceeds of disposition of a tax deferred cooperative share disposed of by the taxpayer in the particular taxation year

      exceeds

      • (ii) the total of

        • (A) the taxpayer’s tax paid balance at the end of the immediately preceding taxation year, and

        • (B) the amount, if any, that is included in computing the taxpayer’s income for the particular taxation year because of an election described in subparagraph (a)(ii).

  • Marginal note:Deductibility limit

    (3) The amount that may be deducted under subsection 135(1) for a particular taxation year by an agricultural cooperative corporation in respect of payments, in the form of tax deferred cooperative shares, made pursuant to allocations in proportion to patronage shall not exceed 85% of the agricultural cooperative corporation’s income of the taxation year attributable to business done with members.

  • Marginal note:Deemed disposition

    (4) A taxpayer who holds a tax deferred cooperative share is deemed to have disposed of the share, for proceeds of disposition equal to the amount that would, if this Act were read without reference to this section, have been included under subsection 135(7), in respect of the share, in computing the taxpayer’s income for the taxation year in which the share was issued, at the earliest time at which

    • (a) the paid-up capital of the share is reduced otherwise than by way of a redemption of the share; or

    • (b) the taxpayer pledges, or for civil law hypothecates, assigns or in any way alienates the share as security for indebtedness of any kind.

  • Marginal note:Reacquisition

    (5) A taxpayer who is deemed by subsection (4) to have disposed at any time of a tax deferred cooperative share is deemed to have reacquired the share, immediately after that time, at a cost equal to the taxpayer’s proceeds of disposition from that disposition.

  • Marginal note:Exclusion from withholding obligation

    (6) Subsection 135(3) does not apply to a payment pursuant to an allocation in proportion to patronage that is paid by an agricultural cooperative corporation through the issuance of a tax deferred cooperative share.

  • Marginal note:Withholding on redemption

    (7) A person or partnership (in this subsection referred to as the “redeeming entity”) that redeems, acquires or cancels a shareholder’s share shall withhold and forthwith remit to the Receiver General, on account of the shareholder’s tax liability, 15% from the amount otherwise payable on the redemption, acquisition or cancellation, if

    • (a) the share was, at the time it was issued, a tax deferred cooperative share;

    • (b) the redeeming entity is the corporation that issued the share, or a person or partnership with whom the corporation does not deal at arm’s length; and

    • (c) the shareholder is not a trust whose taxable income is exempt from tax under this Part because of paragraph 149(1)(r) or (x).

  • Marginal note:Application of subsections 84(2) and (3)

    (8) Subsections 84(2) and (3) do not apply to a tax deferred cooperative share.

  • Marginal note:Application of subsection (10)

    (9) Subsection (10) applies in respect of the disposition, after September 28, 2009, by a taxpayer of a tax deferred cooperative share (in this subsection and subsection (10) referred to as the “old share”) of an agricultural cooperative corporation if

    • (a) the disposition results from the acquisition, cancellation or redemption of the old share in the course of a reorganization of the capital of the corporation;

    • (b) in exchange for the old share the corporation issues to the taxpayer a share (in this subsection and subsection (10) referred to as the “new share”) that is described in all of paragraphs (b) to (d) of the definition “tax deferred cooperative share” in subsection (1); and

    • (c) the amount of paid-up capital, and the amount, if any, that the taxpayer is entitled to receive on a redemption, acquisition or cancellation, of the new share are equal to those amounts, respectively, in respect of the old share.

  • Marginal note:Shares issued on corporate reorganizations

    (10) If this subsection applies in respect of an exchange of a taxpayer’s old share for a new share, for the purposes of this section (other than subsection (9)),

    • (a) the new share issued in exchange for the old share is deemed to have been issued, pursuant to an allocation in proportion to patronage, at the time the old share was issued; and

    • (b) provided that no person or partnership receives at any time any consideration (other than the new share) in exchange for the old share, for the purposes of subsections (2) and (7) the taxpayer is deemed to have disposed of the old share for nil proceeds.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2006, c. 4, s. 80;
  • 2013, c. 34, s. 282;
  • 2015, c. 36, s. 13.