5 May 2011 External T.I. 2010-0380451E5 - Condominium Corporation--Solar Panels

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: Will installing solar panels on the roof of a condominium corporation with a view to participating in Ontario's FIT program prevent the corporation from claiming the tax exemption in paragraph 149(1)(l) of the ITA?

Position: Question of fact.

Reasons: An organization claiming this tax exemption can earn a profit as long as the profit is incidental and the activity is in support of the organization's not-for-profit objectives.

XXXXXXXXXX
						2010-038045
						L. Zannese
						(613) 957-2747
May 5, 2011

Dear XXXXXXXXXX :

Re: Condominium Corporation

This is in response to a letter from your property manager, XXXXXXXXXX , dated September 10, 2010, in which he requested an advance income tax ruling confirming the tax consequences to a condominium corporation of installing solar panels on its roof in order to participate in the "Feed in Tariff" program mentioned below. In particular, the letter referred to concerns that the solar panel project could jeopardize the corporation's ability to claim the tax exemption provided by paragraph 149(1)(l) of the Income Tax Act (the "Act").

As explained during our telephone conversation (XXXXXXXXXX /Erskine), we are unable to provide an advance income tax ruling in response to your inquiry, as the question of whether a condominium corporation is operated so as to qualify for the tax exemption provided by paragraph 149(1)(l) of the Act is a question of fact that can generally only be determined on audit at the end of a taxation year. However, we are willing to provide you with our comments with respect to the situation described in the letter which we hope will be of assistance. Please note, however, that these comments are of a general nature only and are not binding on the Canada Revenue Agency. Also, our comments are limited to issues relating to the Act; your questions regarding the GST/HST implications have been forwarded to our colleagues in the GST/HST Rulings Directorate.

In general terms, paragraph 149(1)(l) of the Act provides that the taxable income of an organization is exempt from tax under Part I of the Act for a period throughout which the corporation meets all of the following conditions:

• it is a club, society or association;
• it is not a charity;
• it is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; and
• its income is not available for the personal benefit of a member or shareholder, unless the member or shareholder is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.

Thus, a condominium corporation is not exempt from tax because it is a condominium corporation; rather, it is exempt while it meets the above requirements. If a condominium corporation does not meet these requirements then it will be subject to tax on its taxable income for the period during which it did not qualify for the tax exemption.

You advised that the condominium corporation of which you are a member proposes to install solar panels on its roof in order to generate electricity which will be sold to the Ontario Power Authority under its "Feed in Tariff" program. The revenues from this initiative will be used by the condominium corporation to cover general operational and financing costs. These costs are normally paid by members' fees.

In order to qualify for the tax exemption described above, a condominium corporation must be organized and operated exclusively for any purpose other than profit, and none of its income can be available for the personal benefit of its members. The courts have recognized that an organization claiming a paragraph 149(1)(l) exemption can earn a profit, as long as the profit is incidental and arises from activities directly connected to its not-for-profit objectives. For example, maintaining reasonable operating reserves or bank accounts required for ordinary operations will generally be considered to be an activity undertaken to meet the not-for-profit objectives of an organization. Consequently, incidental profit arising from these reserves or accounts will not affect the tax-exempt status of an organization. Profit that is incidental and connected to the not-for-profit objectives of an organization, and that is used within the organization to support those objectives, generally is not taken into account in determining whether income is available for the personal benefit of a member.

Whether the profit earned from the "Feed in Tariff" program or any other activity is incidental and connected to the not-for-profit objectives of your residential condominium corporation can only be determined once all the facts have been reviewed at the end of a taxation year. However, we are generally of the view that the solar panel project may be connected to the not-for-profit objectives of your condominium corporation. If this is the case, and the profit related to the project is incidental, then participation in the "Feed-in Tariff" program would not prevent the corporation from claiming the tax exemption provided by paragraph 149(1)(l) of the Act.

We trust that these comments will be of assistance.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Cc: XXXXXXXXXX