13 February 2004 External T.I. 2003-0042541E5 - NPO 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.

Principal Issues: Will certain income generated by an entity jeopardize its status as a non-profit organization?

Position: Question of fact

Reasons: The fact that services will be provided to a business thereby creating a new stream of income for an entity will not necessarily result in the loss of NPO status by the entity. The determination of whether the entity retains its NPO status will depend on the instruments creating the entity and what it will do with the income generated from the new income stream.

2003-004254
XXXXXXXXXX Kimberly Duval
(613) 957-8982
February 13, 2004

Dear XXXXXXXXXX:

Re: Non-Profit Organization and Proposed Activity

This is in reply your letter of October 1, 2003, requesting our views as to whether a non-profit organization, formed to provide specific healthcare related services for a Canadian city, would cease to meet the requirements of paragraph 149(1)(l) of the Income Tax Act (the "Act") if it enters into a contract to provide such services to a large corporation.

Confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website.

Whether a particular entity is a non-profit organization to which paragraph 149(1)(l) of the Act applies, is a question of fact. It must be established that the entity is organized and operated exclusively for non-profit purposes. When determining the purpose for which an association was organized, the instruments creating the association will normally be reviewed. A determination of whether an association was operated exclusively for, and in accordance with its non-profit purpose in a particular year must be based on the facts of each case, which can be obtained only by reviewing all of its activities for that year. Such a determination cannot be made in advance of, or during, a particular year but only after the end of each taxation year.

The CRA's general views regarding non-profit organizations are found in the current version of Interpretation Bulletin IT-496, "Non-Profit Organizations". Paragraphs 7 to 10 of the bulletin provide general comments regarding the determination of whether an association is carrying on a trade or a business and, if so, whether it will result in a finding that an association is not operated exclusively for non-profit purposes. As stated in paragraph 7 of the IT, "generally, the carrying on of a trade or business directly attributable to, or connected with, pursuing the non-profit goals and activities of an association will not cause it to be considered to be operated for profit purposes." This same question must be answered whether an organization carries out its activities directly, through a separate division or through a subsidiary corporation. In any case, the determination of whether an entity qualifies as a non-profit organization remains a question of fact.

As you requested, we have enclosed document number 2002-0153887 for your records. In addition to the comments provided to you in this letter, the discussion entitled "Commercial Activity Undertaken by an NPO" on page 2 of the enclosed document may be of particular interest to you.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

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