Abstract
Cooperatives in Canada have a rich history marked by the plural forces that have been at work shaping the country, and the cooperative movement, in kind. Canada is a bi-lingual parliamentary democracy comprised of ten provinces and three territories, all of which are common law jurisdictions and primarily English-speaking; the exception being the French-speaking province of Québec that operates under a system of civil law. Canada’s natural abundance and sheer size provide the backdrop against which cooperative laws have developed, providing the conditions for cooperative enterprise to flourish on the one hand, and giving rise to parallel, and at times distinct systems of law, on the other. This chapter will begin by contextualizing the emergence of cooperatives in Canada, and then go on to illustrate the national cooperative legal framework. Where necessary, some distinctly provincial laws will be highlighted to provide a fuller picture of Canadian cooperative law.
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Notes
- 1.
See the legislative summary prepared by Jackson and Smith (1998).
- 2.
The Ontario Act set out the conditions precedent for incorporating an association, the purposes for association, and rules to govern the association. Also of note, two cooperative principles were present in the Act – one member, one vote and a prohibition on the extension of credit. For a more detailed exploration of early history of the cooperative movement in Canada see Mullord et al (1988).
- 3.
See MacPherson (1972), pp. 207–226, reprinted in MacPherson (2007)—In the 13 years that followed the creation of the first caisses populaires, Desjardins founded over 100 more, primarily in French-speaking regions. Desjardins was frequently in contact with colleagues in Germany, France, and Italy acquiring information related to cooperative banking initiatives underway in Europe. The moral concerns inherent in Desjardins’ deployment of caisses populaires were consistent with the holistic programs commonly associated with early European cooperative figures such as Robert Owen and Friedrich Wilhelm Raiffeisen. As founder of what would become the Desjardins Group with assets of approximately $197 billion to date, Alphonse Desjardins legacy is unmistakable.
- 4.
- 5.
Supra note 4.
- 6.
Supra note 5 at p. 162 the Report of the Special Committee of the House of Commons to Whom was Referred Bill No. 2, an Act Respecting Industrial and Co-operative Societies is briefly discussed and a citation is provided in footnote 2.
- 7.
Ibid. at p. 163—It has been speculated that this defeat was in large part attributed to a belief that cooperative law-making was better suited to provincial jurisdictions. In addition, the Retail Merchants Association is believed to have exerted much pressure through its lobbying efforts.
- 8.
For a comprehensive overview of the maritime cooperative movement in the early twentieth century see MacPherson (1975); MacPherson (2007), pp. 53ff. The Antigonish credit union movement was in part initiated with the help of Mr. Roy Bergengren, an American affiliated with the credit unions inspired by Desjardins in the United States. As such the Antigonish credit union is called the Bergengren Credit Union.
- 9.
Ibid.
- 10.
Ibid.
- 11.
Supra note 5 at pp. 172ff.
- 12.
Cooperative Associations Act, R.S.A. 1970, c. 67.
- 13.
Canada Business Corporations Act, R.S.C. 1985, c. C-44.
- 14.
For an historical overview of the Cooperative Union of Canada see the Canadian Cooperative Association’s website at http://www.coopscanada.coop/en/about_cca/history.
- 15.
Loc. cit.
- 16.
Supra note 2.
- 17.
Canada Cooperatives Act, S.C. 1998, c. 1.
- 18.
The Constitution Act, 1867, 30 & 31 Vict, c 3
- 19.
Canada Corporations Act, 1970 R.S.C. 1970, c. C-32.
- 20.
MacPherson (1995).
- 21.
Ish (1981), pp. 256ff.
- 22.
Richards (2012).
- 23.
Cooperatives Act, R.S.Q. c. C-67.2.
- 24.
The Government of Canada provides electronic access to all federal statutes and regulations on the Justice Laws Website. The CCA can be accessed directly at http://laws-lois.justice.gc.ca/eng/acts/C-1.7/index.html. Similarly, the Government of Québec maintains a website, Justice Québec, that provides electronic access to all its laws and regulations including the QCA that can be found on the list provided at http://www2.publicationsduquebec.gouv.qc.ca/home.php.
- 25.
The exception being the treatment of ‘investment shares’ in the CCA and similar provincial securities. Investment shares will be explored further in sec. 12.7 of this chapter.
- 26.
Supra note 2.
- 27.
Cooperative enterprise is commonly defined in Canadian cooperative literature as, “a voluntary democratically controlled association of persons who operate an enterprise for the purpose of supplying themselves with commodities or services, on the basis that they share any surplus created in carrying on the enterprise substantially in proportion to the use they make of the association.” This definition is borrowed from Francis Walter B., Canadian Cooperative Law, 1959, Carswell Co.
- 28.
Supra note 24.
- 29.
Ibid. at s. 4. It is significant to note the QCA explicitly addresses concern for community whereas the CCA does not as this goes to the operational objectives of cooperatives incorporated in these jurisdictions as will be shown in this chapter.
- 30.
Supra note 23 at p. 5.
- 31.
Ibid. at p. 6.
- 32.
Supra note 22 at p. 19ff.
- 33.
Supra note 18 at s. 11.
- 34.
Supra note 24 see Chapter V, s. 21–24 for details regarding the organizational meeting.
- 35.
The CQCM is an institution that acts on behalf of cooperatives and mutuals in Québec, at the interface of the cooperative movement and government. For more information see the CQCM website at http://www.coopquebec.coop/fr/mission-du-conseil.aspx.
- 36.
- 37.
Supra note 23 at p. 5—See citation for Canadian Cooperative Association (2011) for further information on community ownership cooperatives.
- 38.
The circumstances that lead to the increased application of the NGC cooperative model throughout the prairie region of Canada are discussed in Haaf and Stefanson (2001).
- 39.
For a comparative exploration of NGC cooperative legislation in Canada’s prairie region see Haaf (2013).
- 40.
A delegate is defined as “an individual who is appointed or elected to represent a member at a meeting of members.” Section 37(2) of the CCA states that, “[I]f the by-laws provide that the voting rights of a member are vested in one or more delegates to be elected or appointed by the members, the delegates so elected or appointed may exercise all or any of those rights.”
- 41.
Ish (1975), p. 21.
- 42.
Supra note 23 at p. 27.
- 43.
Income Tax Act, R.S.C. 1985 c. 1 (5th Supp.).
- 44.
Section 147 of the QCA forbids a cooperative to divide the reserve amongst its members. The QCA recognizes the controversial idea of the indivisibility of the reserve and its permanence, an idea that remains contentious among cooperators. The sole exception to this indivisibility principle in the QCA applies to agricultural cooperatives; these can share the net assets of the cooperative amongst their members after all creditors have been compensated.
- 45.
Supra note 18, see s. 1 (definitions).
- 46.
Supra notes 22, 42 for a detailed discussion of revolving financing schemes.
- 47.
Ibid.
- 48.
Hoyt (2003).
- 49.
Ibid.
- 50.
Supra note 2 at p. 4—The prevalence of agricultural cooperatives throughout Canadian history warranted the creation of governmental administrative bodies within agricultural agencies that were responsible for monitoring and working with cooperative enterprises. However, the composition of the cooperative sector has shifted dramatically in the past decades. Housing cooperatives in Canada comprise some 42 % of the sector, followed by agriculture at 21 %, credit unions and caisses populaires at 14 % combined, retail cooperatives at 10 %, child care and early education cooperatives make up 6 %, while worker cooperatives and health care cooperatives round out what remains at 5 % and 2 % respectively. The current composition of the cooperative sector in Canada has militated towards the Secretariat moving from the AAFC to Industry Canada. This change occurred shortly after this chapter was written.
- 51.
At the time of writing this chapter the law still provided that this role be given to the Conseil de la coopération du Québec but this agency is soon to be replaced by the CQCM.
- 52.
As noted earlier, the surplus allocated to a cooperative’s reserve fund is taxable for the purposes of income assessment.
- 53.
Supra note 22.
- 54.
A cooperative may organize its affairs such that all of the surplus that may accrue annually belongs exclusively to the members and not to the cooperative that is acting as an agent for the members. Towards making a determination as to whether the cooperative or the members have unrestricted rights to the surplus, the courts have employed a test referred to as the ‘quality of income’ test. The quality of income test was created by Justice Brandeis of the United States Supreme Court in Brown v. Helvering (1933), 291 U.S., L. Ed. 193. The test requires an answer to the question, ‘does it [the taxpayer] have an absolute right to the surplus retained?’ The quality of income test was imported into Canadian jurisprudence in Robertson (K.B.S.) Ltd. v. M.N.R. [1944] Ex. C.R. 170 although this was not the first instance where the right to the surplus was considered as a determinative factor in deciding whether a surplus could be subject to income tax. For a more detailed exploration of the case law from which this rule has emerged see Ish Op. cit. at pp. 224–239. Although the general principle exists whereby income is attributed to the person who is beneficially entitled to it, in the case of a non-income cooperative the entitlement would belong to the members, a court will make a determination as to whom the entitlement belongs on a case by case basis if need be.
- 55.
For arguments suggesting that cooperatives have maintained a tax advantage see Report of the Royal Commission on Taxation (Canada 1966—“The Carter Commission”) Vol. 4 available from the Privy Council Office, Ottawa Ontario; online at http://epe.lac-bac.gc.ca/100/200/301/pco-bcp/commissions-ef/carter1966-eng/carter1966-table-eng.pdf accessed December 12, 2012, and the discussion of this Report supra note 22 at p. 260. Cooperative advocates have recently rejected this position in evidence given before the Special Committee on Cooperatives supra note 23 at p. 20 where the Executive Director of the Canadian Cooperative Association, Denyse Guy, states that, “[T]he Income Tax Act does not favour cooperatives over other types of corporations. Whether you are a wheat pool, diary coop, a retail coop, or a coop wholesaler—all pay income tax at the same rates and with the same rules.”
- 56.
See Report of the Royal Commission on Cooperatives (Canada 1945—“The McDougall Commission”) available from the Privy Council Office, Ottawa Ontario; online at http://epe.lac-bac.gc.ca/100/200/301/pco-bcp/commissions-ef/mcdougall1945-eng/mcdougall1945-eng.htm accessed December 12, 2012. The Report set out to determine the most just and equitable means of taxing cooperatives as cooperatives had become significant economic actors in the years between the commissioning of the report and the inception of the Income Tax War Act, 1917, which did not anticipate cooperative enterprise specifically. It found that making taxable deductions available for dividends distributed proportionally with respect to patronage would provide an equitable solution to imposing taxes on cooperative income. The patronage dividend was not only available to cooperatives, but to any taxpayer and therefore was not intended to put cooperatives in an advantageous position over competitor corporations.
- 57.
Supra note 22 at p. 246.
- 58.
Ibid.
- 59.
Another provision that limits the applicability of patronage dividends for taxpayers that are not cooperatives can be found in s. 135(5) of the ITA that requires the prospect of patronage dividends to be put to customers in advance through inclusion in the corporations bylaws, in pre-existing contracts with the customers, or by way of advertising. The entitlement to use patronage dividends for tax deductions is clearly geared towards cooperative enterprise and as such certain rules are required to prevent cooperatives from exploiting patronage dividends to completely avoid income tax. Simultaneously, these rules would cause any other taxpayer (legal person, corporation, etc.) to operate well outside their normal course of business in order to make use of the tax deductions but are still available should they choose to operate in a way similar to a cooperative.
- 60.
Cooperative Investment Plan Act, R.S.Q., c. R-8.1.1.
- 61.
Supra note 23 at p. 22.
- 62.
Le Régime d’investissement coopératif (RIC) Incidences du régime au Québec et potentiel d’un RIC à l’échelle canadienne, 2009, Report prepared for l’Association des coopératives du Canada et le Conseil canadien de la coopération et de la mutualité at p. 1, accessed January 4, 2013, at http://www.coopscanada.coop/public_html/assets/firefly/files/files/CIP_Report_FRENCH_2.pdf.
- 63.
Supra note 37 at p. 12.
- 64.
Ibid. at p. 13.
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Further Reading
Chapman HE (2012) Sharing my life: building the cooperative movement, University of Saskatchewan, Centre for the Study of Co-operatives. Harold E. Chapman, Saskatoon, Saskatchewan, Canada
Côte D (2007) Best prcatices and cooperative development in Québec. In: Emmanuel J, Cayo L (eds) Effective practices in starting coops: the voice of Canadian Coop Developers. University of Victoria, Victoria
Ish D, Ring K (1996) Legal responsibilities of directors and officers in Canadian co-operatives. University of Saskatchewan, Centre for the Study of Co-operatives, Saskatoon
Laycock D (1987) Co-operative-government relations in Canada: lobbying public policy development and the changing cooperative system. University of Saskatchewan, Centre for the Study of Co-operatives, Saskatoon
Acknowledgments
I would like to extend my gratitude to Prof. Claude-André Guillotte, of the University of Sherbrooke and Prof. Tom Webb of St. Mary’s University for their assistance with this chapter. Also, this work was made possible by the Critical Research Laboratory in Law and Society at Osgoode Hall Law School through its support of the Cooperative Governance Initiative and cooperative law research.
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Petrou, T. (2013). Canada. In: Cracogna, D., Fici, A., Henrÿ, H. (eds) International Handbook of Cooperative Law. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30129-2_12
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