Principal Issues: 1. NPO1 and NPO2, which carry on similar non-profit activities and share many of the same members, wish to amalgamate to streamline their operations and reduce costs. However, because a contingent liability faced by NPO1 may increase following an amalgamation, they will defer the amalgamation until the lawsuit is resolved and will in the interim combine their operations, resulting in NPO2 carrying out the operations of both entities in property owned by NPO1. NPO2 would rent such property from NPO1 under a lease agreement which would be set at an amount that would cover the cost of NPO1's mortgage payments and other costs of the property. NPO1 and NPO2 have asked for a ruling that, notwithstanding the lease arrangement, they will still be considered to be organized exclusively for non-profit purposes within the meaning of paragraph 149(1)(l) of the Act?
2. Whether the amalgamation of NPO1 and NPO2 will result in a disposition, by either NPO1 or NPO2 of any of its assets or an acquisition by Amalco of any of the assets of NPO1 or NPO2 for purposes of the Act?
3. Whether any of the members of NPO1 and NPO2 will be considered to have received a gain on the disposition of his or her membership in NPO1 or NPO2, as the case may be, or to have received a benefit pursuant to subsections 15(1), 56(2) or 246(1) or Part XIII of the Act as a result of becoming members of Amalco?
Position: 1. Yes. 2. No. 3. No.
Reasons: 1.The ruling is given based on the overall circumstances, i.e., NPO1 and NPO2 share many of the same members and objects, the proposed lease is temporary and the payments thereunder cover only the mortgage payments and other costs, and any profits will be used for the non-profit objectives for which NPO1 was created.
2. Since NPO1 and NPO2 are not taxable corporations, section 87 of the Income Tax Act does not apply. Accordingly, reference must be made to the governing corporate statutes, which provide that an amalgamated corporation is a continuation of the predecessor corporations.
3. None of the members will receive any money or property or any enhancement of their membership benefits as a result of the amalgamation.
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