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: Request to clarify an article indicating CRA's direction on the NPORIP (NPO audit project).
Position: Education letters are no longer being issued by CPB for audits completed within the project, however, CRA's current interpretations are valid.
Reasons: Discussion with CPB.
XXXXXXXXXX
2012-044853
P. Burnley
(613) 957-2100
October 16, 2012
Dear XXXXXXXXXX:
Re: Non-Profit Organization Risk Identification Project (NPORIP)
This is in response to your correspondence dated May 22, 2012, in which you asked us to confirm that the Canada Revenue Agency (“CRA”) is changing its approach to auditing organizations claiming the exemption from tax provided by paragraph 149(1)(l) of the Income Tax Act (the “Act”).
In 2010, the CRA initiated a three-year Non-Profit Organization Risk Identification Project (NPORIP). Within this project, organizations claiming exemption from tax under paragraph 149(1)(l) of the Act are randomly selected for audit. The NPORIP is intended to gather information so that the CRA can determine the level of compliance within the sector. Some organizations audited within the NPORIP received an “education letter” to remind the organization of the criteria in paragraph 149(1)(l). The CRA has currently discontinued the issuance of these education letters due to concerns expressed by the sector. However, sector compliance with the criteria in paragraph 149(1)(l) of organizations claiming the exemption continues to be of interest to the CRA.
The CRA’s long-standing positions with respect to paragraph 149(1)(l) of the Act as explained in recent interpretations issued by the Income Tax Rulings Directorate and Interpretation Bulletin IT-496R, “Non-Profit Organizations”, have not changed. In general terms, paragraph 149(1)(l) provides that the taxable income of an organization is exempt from tax under Part I of the Act for a period throughout which the organization meets all of the following conditions:
- it is a club, society or association;
- it is not a charity;
- it is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; and
- its income is not available for the personal benefit of a proprietor, member or shareholder, unless the proprietor, member or shareholder is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.
As stated above, an organization claiming an exemption under paragraph 149(1)(l) of the Act must be organized and operated exclusively for any purpose other than profit. Generally, an organization claiming the exemption can earn a profit, as long as the profit is incidental and arises from activities directly connected to its not-for-profit objectives. In addition to operating without a profit purpose, an organization cannot make its income available for the personal benefit of its members. Where an organization intends to earn a profit, particularly from outside (non-member) sources and uses the income to reduce member fees, it is likely operating with a profit purpose and making income available to members. As always, it is a question of fact whether any organization is exempt from tax pursuant to paragraph 149(1)(l).
We trust that these comments will be of assistance.
Yours truly,
R. Albert, CA
Manager
Non-Profit Organizations and Aboriginal Issues Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012
Email this Content