22 July 2002 External T.I. 2002-0128555 - NPO COOPERATIVE CORPORATION

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Is the cooperative exempt from tax pursuant to 149(1)(e) or (l)

Position: None. General comments provided only.

Reasons:

Insufficient information provided. However, this determination can only be made after the end of the particular taxation year, having regard to all the facts and as such falls within the purview of the TSO.

XXXXXXXXXX 							2002-012855

July 22, 2002

Dear XXXXXXXXXX:

RE: TAX EXEMPT STATUS OF A COOPERATIVE CORPORATION

This is in reply to your letter of February 7, 2002 wherein you requested a ruling as to whether or not your cooperative corporation would be exempt from income taxes.

Our Comments

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5. Where a particular transaction is completed, the inquiry should be addressed to your Tax Services Office.

For this reason, we are not in a position to confirm, based on the limited information you submitted, whether your organization is exempt from income tax.

We are, however, prepared to provide you with the following general comments about the application of the Income Tax Act (the "Act") to certain organizations and non-profit organizations (NPO's). The comments below are of a general nature only, and are not binding on the Agency.

Agricultural organizations, boards of trade, and chambers of commerce are exempt from Part I tax by virtue of paragraph 149(1)(e), provided that no part of their income was available for the personal use of their proprietors, members or shareholders. In our view, for the purposes of paragraph 149(1)(e) of the Act, an agricultural organization is an entity organized and operated for one or more of the following purposes: the advancement or furtherance of agriculture; the betterment of the conditions of those engaged in such pursuits; the improvement of the grade or quality of their pursuits or the development of a higher degree of efficiency in their respective occupations.

An organization may also be exempt from Part I tax by virtue of paragraph 149(1)(l) of the Act. In general terms, paragraph 149(1)(l) provides an exemption from tax on the taxable income of a club, society or association (collectively hereinafter called "association"). The Agency's position with respect to the application of paragraph 149(1)(l) is outlined in Interpretation Bulletin IT-496R, Non-Profit Organizations, a copy of which is enclosed with this letter. Generally, an association is exempt from tax under Part I of the Act for a period throughout which the association complies with all of the following conditions:

(a) it is not a charity;

(b) it is organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit;

(c) it is in fact operated exclusively for the same purpose for which it was organized or for any of the other purposes mentioned in (b); and

(d) it does not distribute or otherwise make available for the personal benefit of a member any of its income unless the member is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.

To qualify under paragraph 149(1)(l), an association must be both organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. An association may also be organized and operated exclusively for any combination of these purposes. When determining the purpose for which an association was organized, the instruments creating the association will normally be reviewed. These instruments may include letters patent, articles of incorporation, memoranda of agreement, by-laws, and so on.

To qualify for exemption, an association must not only be organized exclusively for non-profit purposes, but it must in fact be operated in accordance with these purposes in each year for which it seeks exemption under 149(1)(l). A determination of whether an association was operated exclusively for and in accordance with its non-profit purposes in a particular taxation year must be based on the facts of each case, which can be obtained only by reviewing all of its activities for that year. Such a determination cannot be made in advance of or during a particular year but only after the end of the year. An association that qualifies for exemption in a particular year may cease to qualify in a subsequent year by failing to operate in accordance with one of the purposes for which it was organized or by revising its objectives so that it is no longer organized in accordance with a purpose specified in paragraph 149(1)(l). A review of this nature would be conducted by officials of your Tax Services Office, who would be in a better position to appreciate all the circumstances of the case.

To qualify for exemption under paragraph 149(1)(l), no part of the income of an association, whether current or accumulated, can be payable to, or otherwise made available for the personal benefit of, any member of the association. For example, an association would not qualify as tax-exempt if it distributed income during the year, either directly or indirectly, to, or for the personal benefit of, any member; or it has the power at any time to declare and pay dividends out of income. Subsection 149(2) of the Act provides that "income" for the purpose of paragraph 149(1)(l) is deemed to be the amount of income otherwise determined, excluding any net taxable capital gains (taxable capital gains less allowable capital losses). Certain types of payments such as salaries, wages, fees or honorariums for services rendered to the association that were made directly to members, or indirectly for their benefit, will not, in and by themselves disqualify an association from being tax-exempt under paragraph 149(1)(l) where the amounts are reasonable and no more than those paid in arm's length situations for similar services.

We trust our comments will be of assistance to you.

Mickey Sarazin C.A.

Manager, Aboriginal and Non-Profit Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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