CMC is advocating that the Government of Canada implement fair tax treatments and/or other fair public policy treatments for co-operatives with an indivisible reserve, regardless as to whether the reserve is mandatory or adopted by an irrevocable choice of a co-operative.

An indivisible reserve is a reserve, derived from a portion of a co-operative’s annual surpluses. These reserves cannot be divided amongst members of a co-operative. Instead, at the co-operative’s dissolution or sale, they are allocated to another co-operative entity.It is permanent co-operative capital treated as a public goodsimilar toall reserves in non-profit organizations (including non-profit co-operatives) that members have no private claim to it.It contributes to the capitalization, longevity, and development of co-operatives, while acting as a disincentive to demutualization.

Many countries support co-operatives with indivisible reserves by removing the burden of corporate taxation onthe proportion of their income allocated to the indivisible reserve.  Legislative safeguards can also be put in place to:

  • ensure thatthe tax-related benefits, or,  
  • any related federal financial support is protected and paid back, in the event of dissolution or liquidation.  

The International Co-operative Alliance (ICA) in its Guidance Notes to the Co-operative Principles(2015) points out that an indivisible reserve emphasizes the co-operative difference. This is under the third co-operative principle, Member Economic Participation, because at least part of the capital becomes common property of the co-operative. This is why when members are developing their co-operative or possibly setting up reserves, at least part of the latter should be indivisible.

There are jurisdictions where the indivisible reserve is mandatory for all types of co-operatives, specifically in Quebec and Newfoundland and Labrador, and it is also mandatory in non-profit housing co-operatives across Canada. CMC is not advocating for mandatory indivisible reserves in “for-profit” co-operatives, however, only that there is fair tax treatment and/or other fair public policy implemented for co-operatives that do have them.