30 November 2001 External T.I. 2001-0092145 - PAYMENTS MADE TO MEMBER OF NPD

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 CCRA.

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

Principal Issues:

Whether capital improvements are considered to be a taxable benefit to the members.

Position:

Depends on the particular facts.

Reasons:

Condominium Corporations are governed by provincial legislation. Such legislation details what capital improvements a corporation can undertake and what property is the responsibility of each unit holder.

XXXXXXXXXX
2001-009214
N. L. Storry
November 30, 2001

Dear XXXXXXXXXX:

Re: Condominium Corporation

We are writing in response to your correspondence of July 11, 2001, wherein you requested our views regarding the filing requirements of the corporation and whether certain payments made by the corporation would, in any way, change its non-profit status pursuant to paragraph 149(1)(l) of the Income Tax Act (the "Act") or result in any adverse tax consequences to the members of the corporation.

You have described a situation involving a non-profit organization (the "Corporation") registered under the Condominium Property Act of XXXXXXXXXX. The Corporation collects a monthly condominium fee for the maintenance and repair of the common and managed property. A portion of the monthly fee is put into a capital reserve fund. The Corporation has completed the installation of weather decking, glass and railings on the balconies of some of the unit owners.

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate Tax Services Office of the Canada Customs & Revenue Agency (the "CCRA"). Since the review of such transactions falls within their responsibility, it is the practice of the Income Tax Rulings Directorate not to comment on such transactions. In the case of a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular IC-70-6R4 dated January 29, 2001 issued by the CCRA. However, we can offer the following general comments.

Our Comments

T1044 Form

You have asked whether the corporation is exempt from filing a T1044, Non-Profit Organization (NPO) Information Return. A residential condominium corporation that qualifies as a non-profit organization under paragraph 149(1)(l) of the Act is exempt from Part I tax on its taxable income but is required to file Form T1044 with its T2 income tax return. However, pursuant to subsection 149(12) of the Act, if the corporation has not earned more than $10,000 in interest, rentals or dividends, does not own more than $200,000 in assets, or was not required to file an information return for any preceding fiscal period then the corporation is not required to file a T1044, NPO Information Return for the period.

Capital Improvements or Enhancements to Common Property

The objects of a condominium corporation created under Canadian provincial legislation include, among other things, the management of the real property and any other assets of the corporation. The corporation also has a duty to control, manage and administer the common elements and assets of the corporation, and to ensure that the unit owners comply with the corporation's registered condominium documents, its by-laws and the provisions of the relevant condominium legislation. Provided that they are not contrary to the provincial condominium legislation or the registered condominium documents, the board of the corporation may pass by-laws to govern, among other things:

• the management of the property;
• the maintenance of the common elements;
• the use and management of the assets of the corporation; and
• the assessment and collection of condominium fees and contributions towards the common expenses.

It is our opinion that payments made by a condominium corporation for capital improvements or repair and maintenance projects in respect of common property, as defined under the applicable provincial legislation, would generally not affect its status as an NPO and would not constitute a benefit to the unit owners. However, if the property is not considered to be "common property" then for purposes of paragraph 149(1)(l) of the Act such payments would be considered to be paid for the personal benefit of the members.

A condominium corporation that distributes reserve funds for the personal benefit of its members would not qualify as a non-profit organization under paragraph 149(1)(l) of the Income Tax Act. In addition, any members receiving such payments may be considered to have received a taxable benefit in the taxation year in which the benefit is conferred.

We trust our comments will be of assistance to you.

Paul Lynch
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch