6 December 2000 External T.I. 2000-0058175 - NOT FOR PROFIT ORGANIZATION

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:

Is the association a non-profit organization as described in paragraph 149(1)(l) of the Act and thus exempt from tax.

Position TAKEN:

None. Nevertheless, it appears unlikely that the organization is tax exempt, as currently constituted. File referred to the Kingston TSO.

Reasons FOR POSITION TAKEN:

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 an NPO. However, this determination can only be made after the end of the particular taxation year, having regard to all the facts and as such falls within the purview of the TSO.

XXXXXXXXXX 2000-005817
P. Diguer CGA
Attention: XXXXXXXXXX

December 6, 2000

Dear Sir:

Re: Paragraph 149(1)(l) of the Income Tax Act

This is in reply to your letter dated November 16, 2000 in which you request our views on whether XXXXXXXXXX (the "Association") would be considered a non-profit organization for purposes of paragraph 149(1)(l) of the Income Tax Act (Canada) (the "Act"). In this respect, you have provided us with information about the Association including a copy of its original charter, a copy of its by-laws and a copy of the financial statements for its year ended XXXXXXXXXX.

Our Comments

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 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) of the Act 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. Accordingly, we are referring your request to the Kingston Tax Services Office for their consideration.

Should it be determined that your organization does not currently qualify as an NPO for tax purposes, we would however 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 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 charter and the by-laws 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 Agency.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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