Principal Issues: 1. Whether the conversion of DLCC to a non-share capital corporation impacts whether it meets the requirements of paragraph 149(1)(l) of the Act?
2. Is there any disposition on the conversion of the DLCC from a share-capital corporation to a non-share capital corporation?
3. If there is a disposition, will section 51 of the Act apply?
4. Is the DLCC required to file a T1044 Non-profit Organization (NPO) Information Return under subsection 149(12)?
5. Whether the continuance of the DLCC under the Canada Business Corporations Act (the “CBCA”) or the Canada Not-for-Profit Corporations Act (the “CNFPCA”) would, in and by itself, impact its qualification for the income tax exemption under paragraph 149(1)(l)?
Position: 1. The conversion to a non-share capital corporation, in and by itself, does not impact whether it qualifies under paragraph 149(1)(l).
2. In circumstances where, as a matter of law, the shares of a corporation are converted to membership interests without the shares being redeemed, acquired or cancelled, the CRA would not consider the shareholders to have disposed of their shares provided the rights and privileges of the shareholders have not been modified in a substantive way.
3. In cases involving the conversion of a share to a membership interest in a non-share capital corporation, section 51 does not appear to have any application.
4. Maybe, if its income from dividends, interest, rentals or royalties exceeds $10,000 in the fiscal period.
5. No, it is a question of fact.
Reasons: 1. It is a question of fact whether DLCC qualifies for the exemption under paragraph 149(1)(l). It is possible for an organization to meet the requirements of federal or provincial “not-for-profit” corporate legislation, but not qualify for the tax exemption provided under paragraph 149(1)(l).
2. In circumstances where, as a matter of law, the shares of a corporation are converted to membership interests without the shares being redeemed, acquired or cancelled, the CRA would not consider the shareholders to have disposed of their shares provided the rights and privileges of the shareholders have not been modified in a substantive way.
3. Section 51 of the Act would apply only if a membership interest qualified as a “share of the capital stock” of the corporation.
3. Subsection 149(12) of the Act
4. Whether the corporation qualifies for the tax exemption under paragraph 149(1)(l) is a question of fact and is not dependent on whether the corporation is continued under the Canada Business Corporations Act or the Canada Not-for-profit Corporations Act.
