30 November 2000 Internal T.I. 2000-0049177 - NON-PROFIT STATUS

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: Whether XXXXXXXXXX qualifies as a NPO.

Position: Organized as a NPO but unable to determine if operated as such

Reasons: Determination of operation of NPO is responsibility of TSO

			November 30, 2000

	VANCOUVER ISLAND TSO	HEADQUARTERS
J. P. Dunn
	Attention: Brian Whittingham	(613) 957-2747

			2000-004917

XXXXXXXXXX

We are writing in response to your memorandum of September 25, 2000 regarding the above-noted corporation and its status as a "non-profit organization" within the meaning of that term in paragraph 149(1)(l) of the Income Tax Act (the "Act").

XXXXXXXXXX

We would also note that the determination of whether a corporation qualifies as a non-profit organization is to be done on an annual basis i.e. the fact that a corporation qualifies as a non-profit organization in one taxation year does not automatically confer that status in another year. This determination would, normally, be performed by the Compliance Programs Branch of the Agency as an analysis of all the facts surrounding the organization and the operations of the entity for a particular taxation year would be required. We would, however, offer the following comments based upon the documentation submitted with your memorandum.

It is our view that the corporation can be considered to be "organized...exclusively for any... purpose other than profit" within the meaning of that term in paragraph 149(1)(d) of the Act by virtue of the terms of its Memorandum of Association. Further, in that no dividends can be paid on the sole outstanding share of the corporation and that, upon winding-up or dissolution, the net assets must be transferred to another non-profit organization (i.e. the shareholders have no right to any assets upon distribution), it is our view that no part of the income of the corporation is available for the benefit of any shareholder for the purpose of paragraph 149(1)(d) of the Act.

Also, in order to qualify as a "non-profit organization" for a taxation year, the corporation must also be "operated exclusively... for any... purpose other than profit". Although the financial statements of the corporation submitted with your referral indicate that the corporation does, in fact, operate on a cost recovery basis and, consequently, earns no profit, this fact may not be entirely determinative of whether the corporation is exclusively operated for any purpose other than profit. As noted in paragraph 6 of Interpretation Bulletin IT - 496, an organization will not qualify for non-profit status if its activities are directly connected with the sales of member's goods or services and for such services a fee or commission computed in relation to sales is charged by the association. The bulletin further states that such an association is normally considered to be an extension of the member's sales organizations and will be considered to be carrying on a normal commercial operation. This statement may be found to be relevant in the current situation.

We have also noted that the corporation had identified itself as a "taxable" corporation (specifically, a "Canadian-controlled private corporation") on its XXXXXXXXXX corporate income tax return, however it identifies itself as a "non-profit corporation on its XXXXXXXXXX corporate income tax return. We cannot be certain if this change first occurred in XXXXXXXXXX, however, we would suggest that the taxpayer be asked to provide an explanation as to the nature and degree of change in the operations or organization of the company which precipitated this transformation from taxable to non-taxable status. Further to this point, we note that the agreement under which the company operates (the copy of which was enclosed with your referral) was initially executed during the XXXXXXXXXX taxation year of the company during which it identified itself as a taxable entity (notwithstanding that the agreement provides for it to operate on a cost-recovery basis). As noted, the company now claims tax exempt status although, presumably, continues to operate under that same agreement.

We also note that, if, in fact, the status of the corporation has changed, subsection 149(10) of the Act would be applicable at the time of the change with the result that the corporation will, among other things, be considered to have disposed of and reacquired all of its assets at fair market value immediately prior to such change. As the bulk of the corporation's assets consist of depreciable assets, this could result in recapture of capital cost allowance in the taxation year in which the change occurred.

We trust that this will assist in your determination of the status of this corporation.

for Director
Financial Industries Division
Income Tax Rulings Directorate

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