CRA indicates that a s. 149(1)(n) corp. must construct rather than purchase its low-rental housing projects
S. 149(1)(n) exempts the income of a
limited-dividend housing company (within the meaning of … section 2 of the National Housing Act), all or substantially all of the business of which is the construction, holding or management of low-rental housing projects.
It might seem obvious that “or” means “or,” so that a low-rental housing project that was purchased rather than constructed, could qualify. However, CRA noted that the s. 2 definition of limited-dividend housing company referred to “a company incorporated to construct, hold and manage a ‘low-rental housing project’” and whose articles limited its dividend rate to 5% or less. Thus, a company that purchased rather than constructed the project would not qualify.
CRA also noted that it would appear that a project could qualify as a “low-rental housing project” (also defined in the National Housing Act) if the company rented the project units to a registered charity which, in turn, sublet the units to low-income families - although it would want to consult with the CMHC before concluding on this issue.
Neal Armstrong. Summary of 22 February 2021 External T.I. 2020-0848221E5 under s. 149(1)(n).