2 November 2000 External T.I. 2000-0038255 - XXXXXXXXXX

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: We are asked to comment on two issues. First, whether the organization may issue donation receipts. Second, whether the organization is exempt from tax.

Position:. The organization may not issue donation receipts. It appears unlikely that the organization is tax exempt, as currently constituted.

Reasons: We are advised by charities that the organization is not registered; therefore, it may not issue donation receipts. The articles of the organization do not seem to prevent the members of the organization from personally benefiting from its income. Therefore, it is unlikely that the organization currently constitutes and NPO. However, this determination can only be made by the TSO, having regard to all the facts.

XXXXXXXXXX 							2000-003825

Attention: XXXXXXXXXX

November 2, 2000

Dear Sirs:

This is in response to your request for information about charities and non-profit organizations for income tax purposes. In this respect, you have provided us with information about your organization, the XXXXXXXXXX. In a follow-up telephone conversation (Workman/XXXXXXXXXX), you explained that your organization is interested in issuing charitable donation receipts for contributions it receives in furtherance of its objectives, and you are otherwise interested in confirming that your organization is exempt from tax under the Income Tax Act.

In order to issue a charitable donation receipt, an organization must be a registered charity for the purposes of the Income Tax Act. Our information is that your organization is not currently a registered charity and that it is not clear, based on the documents you have provided, that your organization would qualify for registration.

In order to qualify for registration, an organization must demonstrate that it is constituted for charitable purposes and operates in a manner that has been determined to be charitable at law. To meet this requirement, we understand that it must further demonstrate that its ability to engage in non-charitable activities is prohibited or strictly limited to a minimum level. Moreover, the law limits the amount of non-partisan political activity that a registered charity may undertake to further its charitable purposes. The organization therefore must be able to demonstrate that no more than 10% of its resources will be dedicated to such activities. Our understanding is that the purposes stated in the documents you have provided may be too broad and too vague to satisfy these requirements.

To qualify for registration, an organization must also establish that it resides in Canada and be able to demonstrate that it was either created or established in Canada. We understand that it is not clear from your documents whether this is the case, or whether your organization was established in the United States.

There are also various formal requirements that must be satisfied as well. For example, the organization's governing documents must be dated, include a non-profit clause, and be certified by at least three directing officers.

The registration of charities is the responsibility of the Charities Directorate of the Canada Customs and Revenue Agency. If you wish to have further information about the requirements for registration as a charity, we recommend that contact the Charities Directorate (1-613-954-0410) directly.

An organization that is not a charity may qualify for exemption from income tax as a "non-profit organization" (NPO) if it has complied with all the requirements of paragraph 149(1)(l) of the Income Tax Act throughout the taxation year. The determination as to whether a corporation is an NPO takes place on a year-by-year basis, so care must be taken to ensure that the corporation satisfies all the requirements of paragraph 149(1)(l) at all times.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advanced income tax ruling request. Where the particular transaction is completed, the inquiry should be addressed to the relevant Tax Services Office.

For this reason, we are not in a position to confirm whether, based on your current constitution and activities, you have satisfied these requirements. This question could only be addressed by your Tax Services Office. However, should it be determined that your organization does not currently qualify as an NPO for tax purposes, we would be prepared to consider any changes to your structure and activities that you may propose in order to so qualify in the context of an advance income tax ruling request. Regard may be had to Information Circular 70-6R3 for details about the advance income tax ruling procedures. We have attached a copy of Information Circular 70-6R3, for your information.

We are also prepared to provide the following general comments about the application of the Income Tax Act to NPOs for your information.

To qualify as an NPO for the purposes of the Act, an organization must not be a charity (whether registered or not) and must be both organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. In addition, no part of the organization's income may be payable to or otherwise available for the personal benefit of any proprietor, member, or shareholder, unless the proprietor, member, or shareholder was a club, society, or association, having as its primary purpose and function the promotion of amateur athletics in Canada.

To determine whether an organization is organized exclusively for exempt purposes, the organization's enabling documents must be examined, which may include letters patent, by-laws, articles, and so on. We have reviewed the articles you have forwarded to us and note that there seems to be nothing in them which would prevent your members from personally benefiting from the organization's income. If that is the case, the organization may not currently qualify as an NPO for the purposes of the Act.

To determine whether an organization was operated exclusively for, and in accordance with, its non-profit purposes throughout a taxation year, the actual activities of the organization during the year must be reviewed.

We trust our comments will be of assistance to you. Please note that these comments represent our opinion of the law as it applies generally and, as stated in Information Circular 70-6R3, are not binding on the Department.

Yours truly,

F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch