25 May 2004 External T.I. 2003-0053761E5 - Dance costumes provided to students - NPO

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: Whether the provision of dance costumes to members or persons related to members of an association would result in the association ceasing to meet the provisions of paragraph 149(1)(l) of the Act.

Position: Question of fact

Reasons: Paragraph 149(1)(l) does not allow any part of an NPO's income to be distributed for the personal benefits of the NPO's members. In our view, the provision of dance costumes to students through fundraising initiatives, would not, in and of itself, jeopardize the status of the association as an NPO, as long as the costumes are provided in accordance with the association's mandate.

2003-005376
XXXXXXXXXX Kimberly Duval
(613) 957-8982
May 25, 2004

Dear XXXXXXXXXX:

Re: Status as a Non-Profit Organization

This is in response to your facsimile of December 19, 2003 inquiring whether the provision of dance costumes to members of an association or to individuals related to members of an association would disqualify the association from being a non-profit organization within the meaning assigned by paragraph 149(1)(l) of the Income Tax Act (the "Act").

Our Comments

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, Advanced Income Tax Rulings, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advanced Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. 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 at the following address: http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

The determination of whether a particular entity is a non-profit organization is a question of fact. As you are aware, the CRA's general views regarding non-profit organizations are found in the current version of Interpretation Bulletin IT-496, "Non-Profit Organizations". Specifically, paragraphs 11 to 13 of the bulletin provide a general discussion on the topic of personal benefits provided to members.

In order to qualify and/or maintain exempt non-profit organization status as provided by paragraph 149(1)(l) of the Act, an organization is prohibited from distributing or otherwise making available for the personal benefit of a member any of its income unless the member is an association which has as its primary purpose and function the promotion of amateur athletics in Canada on a nationwide basis.

In our view, the fact that an association is providing dance costumes to students of the dance school who may be members or related to members of the association would not, in and of itself, jeopardize the status of the non-profit organization provided the provision of the costumes furthers the objectives and purpose of the association, as described in its instruments. However, as we have not reviewed the instruments creating the association (such as its letters patent, bylaws, etc), we cannot conclusively make this determination.

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

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