28 March 2012 External T.I. 2011-0395201E5 - IT-496R

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: 1. Can a 149(1)(l) organization pay for a member or employee to attend a seminar and continue to claim the exemption from tax? 2. Alternatively, can the organization waive fees in exchange for services and maintain the tax exemption? 3. What is a personal benefit to a member?

Position:1. Likely, yes. 2. Likely, yes. 3. Question of fact.

Reasons: 1. If the member is attending on behalf of the organization and in support of the organization's not-for-profit objectives. 2. Similar to 1, or may be a reasonable exchange for services. 3. Question of fact.

XXXXXXXXXX
									2011-039520
									L. Zannese
									(613) 957-2747
March 28, 2012

Dear XXXXXXXXXX :

Re: Interpretation Bulletin IT-496R, "Non-Profit Organizations" ("IT-496R")

This is in response to your letter dated February 5, 2011, in which you asked for further information regarding certain paragraphs contained in IT-496R. We have summarized your questions as follows:

1. Paragraph 12 of IT-496R provides that a 149(1)(l) organization may pay the expenses of an employee or member to attend a seminar as a "delegate" of the organization. You ask whether a delegate must be a member who can vote at the event on behalf of the organization or may a delegate include any employee or member in attendance.

2. If a member of a 149(1)(l) organization volunteers to assist at a national conference of the organization, would a reduction in attendance fees to attend the conference be considered an honorarium? Would the payment of such an honorarium in these circumstances cause the organization to lose its tax-exempt status?

3. What is a personal benefit for purposes of paragraph 149(1)(l) of the Income Tax Act (the "Act")?

OUR COMMENTS:

1. Attendance at Conferences

Paragraph 12 of IT-496R states:

"Certain types of payments made directly to members or indirectly for their benefit, will not, in and by themselves disqualify an association from being tax-exempt under paragraph 149(1)(l). Such payments include salaries, wages, fees or honorariums for services rendered to the association, provided the amounts paid are reasonable and no more than those paid in arm's length situations for similar services. Also included are payments made employees or other members of the association to assist them in covering their expenses to attend various conventions and meetings as delegates on behalf of the association, provided attendance at such conventions and meetings is to further the aims and objectives of the association."

The term "delegate", as it is used in the above paragraph, generally means a person sent or authorized to represent others. Whether an individual was a delegate in any particular situation is a question of fact. In our view, it is possible for an individual to be a delegate without having the authority to vote. However, should an individual have the authority to vote on behalf of an organization this is a strong indication that the individual is a delegate.

It is always a question of fact whether a member attends a conference primarily for his or her own benefit or to further the objectives of the organization.

2. Services Provided by Members to the Organization

Paragraph 12 of IT-496R, above, states that a payment made directly to a member or indirectly for the benefit of such a member will not prevent the organization from qualifying for the exemption from tax provided by paragraph 149(1)(l) of the Act if the payment is reasonable compensation for services provided to the organization by that member. A reduction in the amount of fees charged to a member to attend a conference of the organization may be considered to be in respect of services received from the member. The reduction should be a reasonable amount when compared to the services provided.

3. Personal Benefit.

As stated in paragraph 11 of IT-496R with respect to the condition in paragraph 149(1)(l) of the Act that no income of the organization be available for the benefit of its members:

"...An association may fail to comply with this requirement in a variety of ways. For example, subject to the comment in Paragraph 12, an association would not qualify as tax-exempt if

(a) it distributed income during the year, either directly or indirectly, to, or for the personal benefit of any members; or ..."

The phrase "personal benefit" is not itself defined by the Act but is generally interpreted broadly. The Merriam Webster dictionary defines the word "benefit" to mean "something that provides an advantage or gain." A personal benefit may exist where there is any connection between the particular payment or benefit and the recipient's membership in the organization. However, an activity undertaken by a member primarily for the benefit of the organization generally will not be considered to result in a personal benefit to the member for purposes of paragraph 149(1)(l) of the Act. Also, there would not be a personal benefit to a member where a service provided to the member is funded by the organization out of member fees or contributions.

I trust that these comments will be of assistance.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch