23 April 1999 GST/HST Interpretation HQR0001544 - Non-profit Organizations

Thank you for your letter of January 5, 1999, (with attachments), concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to XXXXX[.]

Statement of Facts

Our understanding of the facts is as follows:

1. XXXXX is an incorporated entity and, XXXXX was continued under the XXXXX is not incorporated as a non-profit entity under the XXXXX XXXXX was previously owned by a physician who, upon retiring and leaving the area, sold all his shares in XXXXX to the XXXXX[.]

2. The XXXXX is registered under the XXXXX as a non-profit organization. We have reviewed its objects as set out in its incorporating documents and it is evident that it is organized for non-profit purposes.

3. XXXXX owns property and leases office facilities to physicians at a loss or break even basis in order to attract physicians to practice in the area. It is currently operating at a loss as it has only one physician as a tenant.

4. The purpose of XXXXX, as evidenced in subsection 9(1) of the XXXXX XXXXX is to use its real property as an inducement to physicians or dentists who practice in the rural community of XXXXX[.]

5. XXXXX does not have members. It has a board of directors, none of whom may receive dividends or income. The XXXXX is the only shareholder.

Ruling Requested

1. XXXXX meets the definition of "non-profit organization" pursuant to subsection 123(1) of the Excise Tax Act (ETA) as described in GST/HST Policy Statement P[-]215; or alternatively,

2. XXXXX is acting as an agent of the XXXXX in carrying out the XXXXX charitable and public welfare objects and, since it has no independent business purpose of its own, XXXXX should be "deemed" to be operating as part of a non-profit organization.

Ruling Given

Based on the facts set out above, we rule that

1. XXXXX is not organized as a non-profit organization and therefore, does not fall within the meaning of "non-profit organization" in subsection 123(1) of the Excise Tax Act.

2. Since XXXXX is a separate person for GST/HST purposes, it must qualify as a non-profit organization on the basis of its own purposes and activities.

Explanation

1. In order to qualify as a "non-profit organization", as defined in subsection 123(1) of the ETA, an entity must meet all of the following conditions:

(a) it must be organized solely for non-profit purposes;

(b) it is in fact operated solely for non-profit purposes; and

(c) it does not distribute or otherwise make available for the personal benefit of any proprietor, member or shareholder any of its income unless the proprietor, member or shareholder is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.

Organized Solely For Non-Profit Purposes

The Department examines the purposes for which the entity was organized to determine whether the entity was organized solely for non-profit purposes. Furthermore, an organization that is incorporated under legislation for corporations with share capital, should have set out in its governing documents that it is organized for non-profit purposes, in order to be regarded as a non-profit organization for GST/HST purposes.

The purpose of XXXXX according to the submission, is to use its real property as an inducement to physicians who practice in the rural community of XXXXX by leasing property to physicians. This purpose does not expressly state that XXXXX is organized for not-for-profit purposes; nor does it preclude it from having a "for-profit" objective. The fact that XXXXX is currently supplying real property to physicians at a loss is not sufficient to indicate that XXXXX is organized solely for a not-for-profit purpose.

It is apparent, based on the application of the first requirement, that XXXXX is not a non-profit organization. However, it does appear that it meets the remaining two requirements as outlined in the following information.

Operated Solely For Non-Profit Purposes

To be a non-profit organization under the ETA, XXXXX must be operated solely for a purpose other than profit. The determination of whether XXXXX is operated solely for non-profit purposes is based on fact (e.g., activities, finances) and cannot be made in advance. Often past activities may be reviewed to assist in making a determination as to whether an organization is operated solely for non-profit purposes.

In addition, the Department is of the view that an entity is not operated solely for non-profit purposes when its principal activity is the carrying on of a commercial activity where:

(a) it is a trade or business that is operated in a normal commercial manner;

(b) its goods or services are not restricted to members and their guests;

(c) it is operated on a profit basis rather than a cost-recovery basis; or

(d) it is operated in competition with taxable entities carrying on the same trade or business.

Since XXXXX has in the past leased property to physicians at a loss or break even basis and is currently operating at a loss, it appears that XXXXX has operated, and is presently operating, as a non-profit organization.

Does Not Distribute or Otherwise Make Available for the Personal Benefit of any Proprietor, Member or Shareholder, Any of its Income

A non-profit organization may have shareholders but the shareholders may not receive dividends or otherwise derive a personal benefit from their shareholdings.

Since XXXXX does not have members and its only shareholder is a non-profit organization, it does not bestow any "personal benefits", and therefore meets the third requirement of the definition.

2. "Person" is defined in subsection 123(1) of the ETA to mean "an individual, a partnership, a corporation. ..." A "non-profit organization" is defined in the same subsection to mean "a person ... that was organized and is operated solely for a purpose other than profit. ..." Consequently, under the ETA, a person (e.g. a corporation) must qualify as a non-profit organization in its own right, based on its own purposes and activities. XXXXX cannot qualify as a non-profit organization based on the purposes and activities of the XXXXX[.] Nor can XXXXX be deemed to be operating as part of a non-profit organization on the basis that it is carrying out the XXXXX non-profit purposes.

In relation to the registration requirements of XXXXX, a person is a small supplier during a particular calendar quarter and the following month if its total worldwide taxable revenues, including taxable revenues of all its associates, but not including supplies of financial services, sales of capital property or goodwill of a business, does not exceed $30,000. Pursuant to subsection 127(1) of the ETA, a particular corporation is associated with another corporation for GST/HST purposes if, by reason of subsection 256(1) to (6) of the Income Tax Act, the person is related to the other corporation for the purposes of that Act. More information would be required to determine if XXXXX is associated with the XXXXX for GST/HST purposes.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0420.