18 March 2013 Internal T.I. 2012-0470071I7 - Low-cost housing corporation for the aged

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: Comments to Charities Directorate on: 1) proposed eligibility criteria for application process to qualified donees list; and 2) application process and documentary requirements.

March 18, 2013

Charities Directorate Headquarters
Policy, Planning and Legislation Income Tax Rulings
Directorate
Anna Messore
Attention: Susan Mott (613) 948-2227

2012-047007

Qualified donee: Low-cost housing corporation for the aged

This is in response to your request seeking our views on a corporation that provides low-cost housing accommodation for the aged (a "low-cost housing corporation") within the meaning of paragraph 149(1)(i) of the Income Tax Act (the "Act"). Your request has arisen due to the requirement that, effective January 1, 2012, a low-cost housing corporation must apply for registration with the Canada Revenue Agency ("CRA") in order to become or remain a qualified donee for the purpose of issuing charitable donation receipts.

Specifically, a low-cost housing corporation resident in Canada that has applied to and is registered by the Minister of Revenue is a "qualified donee" pursuant to subparagraph (a)(i) of the definition of qualified donee in subsection 149.1(1) of the Act. A qualified donee must be shown on a list maintained and made public by the CRA. As a qualified donee, a low-cost housing corporation resident in Canada may issue donation receipts for gifts received.

We understand that the Charities Directorate is currently developing an application process for a low-cost housing corporation resident in Canada to apply for registration as a qualified donee and is seeking our assistance in this regard.

Our comments

The definition of a qualified donee in subparagraph 149.1(1)(a)(i) of the Act requires that a corporation applying for registration be:

• resident in Canada;
• exempt from tax because of paragraph 149(1)(i) of the Act.

Low-cost housing corporation within the meaning of paragraph 149(1)(i) of the Act

Paragraph 149(1)(i) provides an exemption from Part I tax on the taxable income of:

"a corporation that was constituted exclusively for the purpose of providing low-cost housing accommodation for the aged, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof;"

For the purpose of this provision, the CRA has interpreted the key criteria as follows:

• Corporation constituted exclusively for the purpose of
  • The corporation must be both constituted and operated exclusively for the purpose of providing low-cost housing accommodation.
  • This involves both a consideration of the corporation's enabling documents and of the nature of the activities carried on by the corporation.
• Providing low-cost housing accommodation for the aged
  • There is no definition of low-cost housing accommodation in the Act. In our view, low-cost housing accommodation includes comfortable but modest rental accommodation at rent levels which are low relative to rent levels generally available for similar accommodations (other than subsidized or non-profit accommodations) in the same community.
  • The fact that a corporation provides accommodation primarily to aged persons of low or modest income does not necessarily mean that the cost of such accommodation will be low.
  • The corporation must be established exclusively to provide housing accommodation for the aged. The provision of housing accommodation "primarily" for the aged does not qualify as "exclusively" for the purpose of the exemption. For example, a corporation whose objectives include the provision of accommodation to persons other than the aged would not be considered exclusively for the aged.
  • The CRA has accepted "aged" to be generally 55 years of age and over.
  • The CRA has accepted that low-cost housing accommodations for the aged may include providing meals, laundry services, home furnishings, medical/nursing care, house-keeping services, resident aides' services, and general assistance with matters of daily living.
• No part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder of the corporation
  • The corporation may not distribute income, either directly or indirectly, to, or for the personal benefit of any member or shareholder. The corporation should not have the power to declare and pay dividends out of income. The corporation's governing documents (letters patent, articles of incorporation and by-laws) should specifically prohibit such distribution of income.
  • This requirement also applies on a winding-up, dissolution or amalgamation.

In our view, the criteria in paragraph 149(1)(i) of the Act must be met on an ongoing basis for a corporation to qualify as a low-cost housing corporation.

Application process

As mentioned, your Directorate is currently developing an application process for a low-cost housing corporation to apply for registration as a qualified donee (the "Applicant"). You have requested assistance with respect to the documentation required of an Applicant for registration as a qualified donee.

In our view, an Applicant must clearly provide evidence that it is constituted (and operated) as a low-cost housing corporation. Presently, as there is no prescribed form to apply for registration, an Applicant should submit a letter to the CRA (Charities Directorate) and include documentation such as the following:

• Identifying information of the Applicant; i.e., name, mailing address, business number, tax services office and tax centre servicing the entity.
• A statement indicating whether, to the best of the Applicant's knowledge, the CRA has at any time considered the corporation's eligibility as a low-cost housing corporation within the meaning of paragraph 149(1)(i) of the Act. If yes, provide a copy of any relevant documentation.
• A full description of the Applicant's purpose and stated objectives.
• A full description of the persons to whom the Applicant is authorized to provide its services by virtue of its governing documents.
• An explanation of the type of activities, obligations and responsibilities the Applicant is entitled to undertake by virtue of its enabling documents.
• A description of the actual operations of the Applicant and the services provided in fulfillment of its stated objectives and activities. This description should include a statement as to the persons to whom the Applicant will be providing the low-cost housing accommodation and all services provided by the Applicant.
• A full statement as to how the Applicant meets the criteria as a low-cost housing corporation; in particular, age of the residents, rent charged, and how this constitutes "low-cost" housing accommodation.
• An explanation of the source of revenues of the Applicant, including funding received.
• If relevant, a description of any other activities carried on by the Applicant, such as business activities.
• Copies of supporting documents and agreements supporting the Applicant's request as necessary. This would include copies of the Applicant's constating documents and by-laws containing, for example, provisions prohibiting distribution of the corporation's income to its proprietors, members or shareholders. The relevant sections of the supporting documents should be noted for ease of reference.

Please do not consider this list as exhaustive, but rather an aid in reviewing the Applicants for registration. The requirements may change with each case under review.

P. Burnley, CA
A/Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch