Subsection 135(1) - Deduction in computing income
Administrative Policy
19 November 2013 T.I. 2011-0414201E5 F - Coop, ristournes, société de personne
A coop holds an interest in a limited partnership whose members also are members of the coop. For purposes of s. 135, are the customers of the coop the LP or the customers of the LP? CRA stated (TaxInterpretations translation):
Subsection 135(1) provides a deduction in the computation of the income of a taxpayer for a taxation year when it pays and amount as "an allocation in proportion to patronage" ("Rebate"). … Paragraph 96(1)(a) provides that the amount of income, non-capital loss or net capital loss of a partner of a partnership is computed as if the partnership were a separate person resident in Canada. Given that subsections 135(1) and (2) envisage the deduction of a payment of a Rebate in the computation of the income of a partner, paragraph 96(1)(a) applies for the purposes of subsection 135(1) and (2). Consequently, when a Coop deals with an LP of which it is a partner, we generally are of the view that the customer of the Coop is the LP and not the customers of the LP.
22 July 2013 T.I. 2012-0467231E5 - Patronage dividends and capital gains
Patronage dividends paid to members totalling the amount of taxable capital gains realized by a co-op will be deductible by the co-op pursuant to s. 135(1), provided all requirements of section 135 are met.
19 June, 1995 T.I. 950842 (C.T.O. "Patronage of Dividends by Non Co-op"
"Private retailers who are not organized as co-operatives may deduct the amount of patronage dividends paid to customers. Such payment may be made by the issuance of shares without the need for exchange of paper."
13 March 1992 T.I. 5-920029 -
Payments made by a credit union to non-members which were similar in nature to allocations in proportions to borrowing and bonus interest payments paid to members, might be deductible by the credit union pursuant to s. 135(1).
13 March 1992 T.I. (Tax Window, No. 18, p. 7, ¶1804)
A credit union can deduct payments made to non-members which, if made to members, will be deductible under s. 137(2) provided that the payments melt all the requirements of s. 135(4)(a). It is possible to allocate a credit in an amount of nil to either all of the members or all of the customers who are non-members., No. 18, p. 7, ¶1804):
Subsection 135(2) - Limitation where non-member customer
Cases
The Queen v. Consumers' Co-Operative Refineries Ltd., 87 DTC 5409, [1987] 2 CTC 204 (FCA)
The taxpayer paid patronage dividends to its sole member in respect of refined products sold to it but no such payments were made to purchasers of crude oil produced by wells in which the taxpayer had an interest. The Court of Appeal affirmed the conclusion of Reed, J. that in order to attain the "obvious object" of limiting the deductibility of patronage dividends only when the differentiation between customers is not reasonably attributable to differences in the goods or products that are sold to the co-operative, there can be a zero allocation of payments for purposes of s. 135(2).
Subsection 135(4) - Definitions
Allocation in Proportion to Patronage
Administrative Policy
19 June 1995 Memorandum 950842 (C.T.O. "Patronage Dividends Paid by Non Co-ops")
"Although it is usually a co-operative that deducts patronage dividends, this deduction is available to any taxpayer who qualifies including sole proprietors, partnerships and ordinary corporations." Payment of a patronage dividend may be affected by the issuance of shares.
27 March 1995 T.I. 5-943197
General discussion.
7 June 1993 T.I. (Tax Window, No. 31, p. 23, ¶2549)
The payment by a non-profit housing project for seniors of the excess of the selling price for units over the cost of construction would not qualify as a patronage dividend because the housing units would not be "goods or products".
26 August 1992 T.I. (Tax Window, No. 23, p. 19, ¶2138)
A payor organization will not be considered to have failed to make "allocations in proportion to patronage" by virtue of members waiving their right to a particular dividend, provided they do not waive their right to receive all allocations.
Income of the Taxpayer Attributable to Business Done With Members
Cases
Interprovincial Co-operative Ltd. v. The Queen, 87 DTC 5115, [1987] 1 CTC 222 (FCTD)
It was held that although suppliers shipped to, and billed, members of the co-operative directly, the members acted as agents of the co-operative when they acquired goods from the suppliers, as evidenced inter alia by the fact that they pledged the co-operative's credit when they so acquired goods. [C.R.: Agency]
Sedgewick Co-operative Association Ltd. v. The Queen, 83 DTC 5455, [1984] CTC 14 (FCTD)
Since the word "income" in s. 135(4)(d) (and s. 135(2)) is not preceded by the word "business", that "income" is to be calculated on the basis of the general rules provided by the Act and accordingly includes taxable capital gains (S.3(b)). The effect of this interpretation is that there is no taxation on capital gains that are distributed to the patrons of consumer co-operatives.
Subsection 135(7) - Payment to customer to be included in income
Administrative Policy
26 August 1992 T.I. (Tax Window, No. 23, p. 19, ¶2138)
A patronage dividend will not be included in the income of a co-operative member if the member unconditionally foregoes her present and future right to the dividend.