17 February 2004 Internal T.I. 2004-0056041I7 - Nature of organization and whether exempt

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.

Principal Issues: What is the nature of the entity, should it be given business number and appropriate account numbers.

Position: General comments provided. Likely the entity is not a corporation. It may be exempt under paragraphs 149(1)(c) or (l).

							February 17, 2004

		HEADQUARTERS		HEADQUARTERS
	Operational & Program Support - BRPP			Income Tax Rulings
				  Directorate
	Attention:  Mark Boertjes			Roxane Brazeau-LeBlond, CA
				957- 2141

				2004-05604

Entity type, Business Number and Program Accounts

This is in response to your memorandum of January 15, 2004 regarding the XXXXXXXXXX (hereinafter referred to as the "entity") wherein you were inquiring as to the nature of the entity, whether it should be given a business number and whether it should be given the appropriate accounts.

Although the determination of the exact nature of a particular entity is beyond the mandate of the income tax rulings directorate, we have the following comments, which may be useful.

By virtue of subsection 2(1) of the Act, a person is subject to Part I tax on its taxable income for each year it is resident in Canada at any time in the year.

Subsection 248(1) of the Act defines "person" as any word or expression descriptive of a person and includes any corporation, and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity's taxable income and the heirs, executors, liquidators of a succession, administrators or other legal representatives of such a person, according to the law of that part of Canada to which the context extends. By virtue of the XXXXXXXXXX, hereinafter referred to as "the legislation under which the entity was created", the entity has, for the purposes of its functions, XXXXXXXXXX.

As there is no question about the entity being resident in Canada, as a person, the entity could be subject to tax under Part I. However, if it meets the criteria for certain exemptions under subsection 149(1) of the Act, its taxable income could be exempt for a period when that person is, for example, a public body performing a function of government as described under paragraph 149(1)(c) of the Act, or a non-profit organization under paragraph 149(1)(l).

To qualify for tax-exempt status under paragraph 149(1)(c) of the Act, the entity would have to be considered a public body performing a function of government. It is a question of fact whether or not the entity is a public body performing a function of government. The following excerpts from the legislation under which the entity was created would indicate that it may be performing a function of government. It provides that the entity:

? "... XXXXXXXXXX ..."

? "...XXXXXXXXXX ..."

It also provides that XXXXXXXXXX.

In addition to performing a function of government, paragraph 149(1)(c) of the Act also requires the entity be considered as a "public body". The term "public body" is not defined in the Act and must, therefore, be considered to have the meaning assigned to it by dictionaries and common usage. Webster's Collegiate Dictionary (tenth edition) defines the word "public" as meaning:

"...of, relating to, or affecting all the people or the whole area of a nation or state; of or relating to government; of or relating to people in general;...of or relating to business or community interest as opposed to private affairs; devoted to the general or
national welfare..."

Although it would appear that the entity could be considered to be a public body performing a function of government, in the alternative, paragraph 149(1)(l) of the Act constitutes another possibility under which the organization's income could be exempt from tax.

To qualify for tax-exempt status under paragraph 149(1)(l) of the Act, an association must be both "organized and operated" exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. To establish the purpose for which an association was organized, we will normally look to the instruments by which it was created. These instruments may include letters patent, articles of incorporation, memoranda of agreement, by-laws, articles and so on.

The current version of IT-496 discusses non-profit organizations (NPOs) and comments on some of the factors that are to be considered when determining whether an organization is a NPO exempt from tax under 149(1)(l).

Note that although the legislation under which the entity was created XXXXXXXXXX, it would not appear that the entity is a corporation XXXXXXXXXX. Accordingly, if it is not a corporation, the entity would not be required to produce a T-2 return. If it is a NPO under paragraph 149(1)(l), it may have to file Form T1044, Non-Profit Organization (NPO) Information Return.

As to whether it should be given a business number and whether it should be given the appropriate accounts, that determination would have to be made in accordance with the directives in the CRA publication RC2, The Business Number and Your Canada Customs and Revenue Agency Accounts.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roxane Brazeau-LeBlond, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch