CRA indicates that renting common areas out to third parties would disqualify a residential housing co-operative continue to qualify as an NPO under s.149(1)(l)

Would a residential housing co-operative (Co-op) continue to qualify as an NPO under s.149(1)(l) if it earned profits from renting its common areas to third-parties (e.g., film companies)? CRA noted its position that “a tax-exempt NPO can earn a profit, as long as the profit is incidental,” i.e., “not significant and arises from activities directly connected to the organization’s not-for-profit objectives.” For example it was acceptable that the Co-op earned “modest revenues from providing laundry machines for use by residents of the Co-op.”

In contrast, here the anticipated profits from renting out the Co-op’s common areas were expected “to be considerable enough to assist the Co-op in paying for major repairs, ongoing maintenance of the building, maintaining a reserve fund, and lowering monthly maintenance fees for the residents.” Accordingly, that activity would disqualify it under s. 149(1)(l).

Neal Armstrong. Summary of 13 May 2024 External T.I. 2022-0944461E5 under s. 149(1)(l).