CRA treats management fees paid by a non-profit organization as disguised profit distributions

CRA found that a non-profit organization, which had made a significant investment in a taxable corporation and which paid substantial management fees to its non-profit sole member corporation, was almost certainly ineligible for the s. 149(1)(l) exemption.  The management fees, which were well in excess of any management costs of the sole member, were treated effectively as profit distributions for the benefit of the member - and it was irrelevant that the member itself was an NPO.

CRA's conclusion is consistent with other recent positions it has taken pursuant to its "NPO project," which are based inter alia on CRA's position that Woodward's establishes that "if the objectives of the organization cannot be achieved without the making of a profit, then the organization must be organized and operated for the purpose of profit."

Scott Armstrong.  Summary of 21 November 2012 Memorandum 2012-055501I7 under s. 149(1)(l).