Heather asked:

A non-profit golf course in Ontario has recently run into some financial difficulty. Recently, the club has decided to offer equity memberships ($7500). By-laws were changed to reflect that should the non-profit corporation dissolve, the equity members would share in any residual profits pro-rated to the number of shares owned. My question is this, if I purchase a share, what, if any, are the capital gains implications, present or future.

Secondly, over the last three years, this same organization charged members a special assessment to pay for a much needed septic system. The club did not put in the septic system and instead diverted the funds to cover operational deficits. The diversion of the funds was not know to the membership. Is this misappropriation. If I buy an equity membership, can I be held responsible for paying this money back to members (non-equity that paid into the fund) The amount of assessment money is in excess of $130,000 over three years.

Gord Ahier answered:

Assuming you acquire a share or interest in the corporation, at the time that you sell your interest you would be liable for income tax on the resulting capital gain. The capital gain is the difference between the proceeds you receive on the sale of your interest and your cost you paid to acquire the interest.

However, it is important to understand that if the corporation sells the golf course, distributes the cash to the shareholders and then winds up, this distribution is taxed as a dividend in your hands. In this situation you would have a taxable dividend and a capital loss representing the cost you paid to acquire your interest. A capital loss can only be applied against capital gains.

Regarding your second question, normally in the event there is a diversion of funds, the directors of the corporation may be held responsible as opposed to the equity members. However, there are a number of factors to be considered and legal advice should be obtained.

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