CRA indicates that an NPO cannot subsidize fees to it members with facility-use fees charged to non-members – but isn’t tainted by potential liquidating distribution to members until used
The Societies Act enacted in B.C. in 2015 contemplated a “member-funded society” that is funded primarily by its members to carry on activities for their benefit, e.g., sports clubs, golf courses and professional associations, and that is permitted to distribute assets to its members if the society winds up. S. 2(2) of the Act provides: “A society must not have, as one of its purposes, the carrying on of a business for profit or gain, but carrying on a business to advance or support the purposes of a society is not prohibited by this subsection.”
The ETA definition of a non-profit organization provides (similarly to the definition in ITA s. 149(1)(l)) that a qualifying NPO must be “organized solely for a purpose other than profit” and that “no part of [its] income is payable to, or otherwise available for the personal benefit of, any … member.” Respecting the first quoted requirement, CRA stated:
Per Policy Statement P-215, an “entity may carry on an income-generating activity and still qualify as a non-profit [organization]. To qualify, the income-generating activity must be carried on, and the resulting income must be used by the entity, to achieve its declared non-profit objectives.” A society would need to ensure that the business is not its purpose, but a means to an end, and is not carried on for profit.
Respecting the last sentence in the above passage, CRA did not explain how a business can be “a means to an end” (i.e., presumably, generating funds for its non-profit objects) while at the same time not being “carried on for profit.”
Respecting the second quoted requirement, CRA stated:
[I]f the facility of a member-funded society is used by non-members and the income resulting from the non-members’ fees is used to subsidize the members’ fees … income of the entity is considered to be payable to, or otherwise available for the personal benefit of, its members and the entity would not qualify as [an NPO].
However, CRA indicated that the potential for the society to distribute its property to its members does not adversely affect its NPO status prior to the decision to wind up.
CRA stated that a supply of memberships in the society for a fee would not be exempted under Sched. V, Pt. VI, s. 17 where such memberships are “in professional associations that give the right to practice a profession or to use a title … as these benefits exceed the allowable benefits listed in paragraphs (a) to (f)” of s. 17.