13 January 2005 External T.I. 2004-0101321E5 - 149(12): Information Returns

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether the fees charged are considered to be rents for the purpose of paragraph 149(12)(a)?

Position: Question of law.

Reasons: The organization must file a Non-Profit Information Organization Return only if the fees charged are rentals in law. This determination has to be done in light of the contract concluded between the parties.

									2004-010132
XXXXXXXXXX 								Michelle Desrosiers,
  Notary, M.Fisc.
January 13, 2005

Dear XXXXXXXXXX:

Subject: Non-Profit Organization Information Return

This is in response to your electronic message of October 19, 2004 wherein you requested our opinion on the application of paragraph 149(12)(a) of the Income Tax Act (the Act) to the situation where a non-profit organization ("NPO") provides pastureland to farmers.

The NPO allows farmers to use the pastureland for their cattle and charges each farmer a fee based on the weight gain of each farmer's cattle while they graze on the pastureland. You ask whether the fees are considered to be rental income for the purpose of paragraph 149(12)(a) of the Act.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. However, we are prepared to provide the following general comments, which may be of assistance.

Under subsection 149(12) of the Act, an NPO that satisfies certain conditions is required to file Form T1044, Non-Profit Organization (NPO) Information Return (the Return). For instance, if the total of all amounts of taxable dividends or amounts received or receivable as interest, rentals or royalties exceeds $10,000 in the period, the NPO meets the condition described in paragraph 149(12)(a) of the Act and is required to file Form T1044.

The determination of whether a specific arrangement would constitute a rental agreement is a question of law. This determination would depend on the contract concluded between the parties. If, under contract law, the weight gain fees charged for use of the pastureland constitute rental income then the fees will have to be considered in determining whether the condition described in paragraph 149(12)(a) is satisfied.

We hope the following general information is helpful in determining whether the fees charged to farmers are rentals.

Justice Thurlow C.J. in The Queen v. Saint John Shipbuilding & Dry Dock Co. Ltd., 1980 DTC 6272 (FCA), discussed the meaning of "rentals" at page 6275:

"The word "rental" is not a familiar one to use in connection with property rights of the kinds enumerated but I see no reason to think that when used in reference thereto it would connote characteristics different from those it has in its more familiar use in relation to tangible property. A rental can, of course, be paid in a lump sum but in my opinion the word is inseparable from the connotation of a payment for a term, whether fixed in time or determinable on the happening of an event or in a manner provided for, after which the right of the grantee to the property and to its use reverts to the grantor."

Even though this case discussed subsection 212(1)(d) of the Act, we consider that this meaning could also be applied for the purpose of paragraph 149(12)(a) of the Act.

In the judgment of Justice Addy in the Buonincontri case (Buonincontri v. The Queen, 1985 DTC 5277 (FCTD)), the question of "rent" was examined at page 5279:

"Meaning of rent

Rent is not specifically defined in the Income Tax Act. There does not seem to be much difficulty in determining the common ordinary meaning of the word "rent". We find the following dictionary definitions:

Oxford English Dictionary (1970):

The return or payment made by a tenant to the owner or landlord, at certain specified or customary times, for the use of lands or houses.

The Random House Dictionary of the English Language(1970):

A payment made periodically by a tenant to an owner or landlord in return for the use of land, a building, an apartment, an office, or other property.

Funk & Wagnalls Standard College Dictionary (1982):

Compensation made in any form by a tenant to a landlord or owner for the use of land, buildings, etc., especially when paid in money at regular or specified intervals.

The Oxford Companion to law (1980):

The consideration, usually in money, paid to a landlord by a tenant of land, buildings, or other corporeal hereditaments for exclusive possession of them for a period. Prima facie rent is fixed by negotiation and it is usually payable weekly, monthly, quarterly, or half-yearly."

Based on the limited information provided, an argument could be made to support a conclusion that the amounts are rentals for the purpose of applying paragraph 149(12)(a) of the Act.

We trust that the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch