CRA rules on a registered charity carrying on a land development business through a trust

A registered charity such as a charitable organization or public foundation is prohibited from carrying on a business (other than a "related business"). CRA ruled that a charitable organization holding vacant lands could indirectly develop the lands as serviced lots suitable for sale to a builder by selling the lands to an LP in which it indirectly participated as limited partner through a newly-formed discretionary trust (with the other named beneficiary being an allied charity) – so that these transactions would not by themselves result in the charitable organization being considered to carry on a business other than a related business. As the trust presumably would distribute its share of the LP profits to the charitable organization, the effect is that the charitable organization can profit on a tax exempt basis from what likely is an unrelated business. CRA also gave a GAAR ruling.

Essentially no reasons were given and no reference was made to s. 108(5), which deems trust distributions to be property income rather than income from a business. At some point, someone may ask whether this means that a charity can carry on any business it wants on an exempt basis through a trust!

Neal Armstrong. Summary of 2014 Ruling 2014-0529291R3 F under s. 149.1(2)(a).