2013 Ruling 2013-0511631R3 - XXXXXXXXXX paid by 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: Will an organization lose its tax exempt status under 149(1)(l) if it makes payments to its members under a XXXXXXXXXX program?

Position: Not in this situation.

Reasons: The organization has organized its program so that no income is being paid to members. Eligible members are receiving a return of contributions only.

XXXXXXXXXX
2013-051163

XXXXXXXXXX, 2013

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. Any information you have provided to us forms part of this ruling only to the extent it is expressly referred to or described herein.

To the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in this ruling is:

a) dealt with in an earlier tax return of the above-referenced taxpayer, or a related person,

b) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the above-referenced taxpayer or a related person,

c) under objection or appeal by the above-referenced taxpayer, or a related person, or

d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.

The above-referenced taxpayer previously applied for and was granted, an advance income tax ruling in respect of a XXXXXXXXXX program. As discussed in more detail below, an advance income tax ruling was issued XXXXXXXXXX, 2009 (the "Initial Ruling") XXXXXXXXXX. The XXXXXXXXXX program described in the Initial Ruling, XXXXXXXXXX, was implemented in XXXXXXXXXX.

The above-referenced taxpayer represents that the proposed transaction described herein will not result in it or any related person being unable to pay its outstanding tax liabilities.

DEFINITIONS

In this letter, unless otherwise specified, all references to monetary amounts are in Canadian dollars and the following terms have the meanings specified:

a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;

b) "CRA" means the Canada Revenue Agency;

c) "Eligible Member" means a Member who meets the eligibility requirements for the Program described in paragraph 5 of this letter;

d) XXXXXXXXXX;

e) "Leave" for the purposes of the Program means a XXXXXXXXXX leave of absence that meets the eligibility requirements for the Program;

f) "Member" means an individual who is a member of the Organization;

g) "Member in Good Standing" means a Member who XXXXXXXXXX;

h) "Members' Fees" means the annual XXXXXXXXXX dues required to be paid by Members pursuant to the XXXXXXXXXX and paid by Members, their businesses, or their employers;

i) "Organization" means the XXXXXXXXXX;

j) "Program" means the XXXXXXXXXX Program as more fully described in paragraphs 4 and 17 of this letter; and

k) XXXXXXXXXX.

FACTS

1. The address of the Organization is XXXXXXXXXX. The business number of the Organization is XXXXXXXXXX. The Organization is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.

2. The Organization is organized and operated as a corporation without share capital established under the XXXXXXXXXX. The Organization submits that it is not a "charity" within the meaning assigned by subsection 149.1(1); that no part of the income is payable to or available for the personal benefit of a member; and that it is a XXXXXXXXXX that is organized and operated exclusively for any other purpose except profit. As such, the Organization files its return of income under Part I for each year on the basis that all its income is exempt from income tax under Part I pursuant to paragraph 149(1)(l).

3. XXXXXXXXXX.

4. The Program provides a fixed sum XXXXXXXXXX of $XXXXXXXXXX a week for up to XXXXXXXXXX weeks (to a maximum of $XXXXXXXXXX per leave per XXXXXXXXXX unit) to XXXXXXXXXX.

5. The current eligibility requirements of the Program are as follows:

XXXXXXXXXX.

6. XXXXXXXXXX.

7. Members must complete and submit an application form to apply for XXXXXXXXXX under the Program and must provide supporting documentation to the Organization. Applications must be made within XXXXXXXXXX weeks of:

XXXXXXXXXX.

8. The Organization must approve the application before XXXXXXXXXX payments can be made pursuant to the Program.

9. The funds paid under the Program are designed to cover expenses associated with XXXXXXXXXX.

10. The purpose of the Program is to XXXXXXXXXX.

11. The XXXXXXXXXX payments made under the Program are made directly to the Eligible Member. A T4A is issued to the Eligible Member by the end of the February of the year following the XXXXXXXXXX payments indicating the amount paid to that Eligible Member under the Program and the amount is reported on the T4A as "other income".

12. The Program is funded solely by Members' Fees. The amount needed to fund the Program is determined prior to each fiscal year by estimating the expected payments for the next fiscal year using data compiled by consultants and actuaries and adjusted for previous surpluses, if any.

13. Each year, as Members' Fees are collected, the annual fees required to fund the Program are set aside in a restricted fund referred to as the "Account". No income, interest or otherwise, is or will be attributed to the funds set aside in the Account.

14. Under the Program, XXXXXXXXXX payments to Eligible Members are made only from the funds set aside in the Account. Any excess amount in the Account at the end of the fiscal year is carried over to the next fiscal year to be used to fund the Program in that year.

15. Prior to implementing the Program in XXXXXXXXXX, the Organization requested and received confirmation in the Initial Ruling that the XXXXXXXXXX payments made to Eligible Members under the Program would not, in and of itself, cause the Organization to lose its status as a tax-exempt entity under paragraph 149(1)(l).

16. XXXXXXXXXX. As a result of the legislative changes to the Employment Insurance Act, it became possible for self-employed individuals to receive employment insurance benefits through the employment insurance special benefits program if certain requirements were met.

17. In XXXXXXXXXX, the Organization reconsidered the Program in light of the expiry of the XXXXXXXXXX-year initial pilot period and the aforementioned changes to the Employment Insurance Act. Specifically, the Organization looked at the statistical information about Program recipients, the findings of interviews with Program recipients, and the cost implications of various alternative models to the Program. As a result of this work, the Organization decided to amend the criteria for eligibility under the Program as described in paragraph 18 of this letter. In addition, the Organization decided to extend the term of the Program indefinitely. The Organization will continue to evaluate the Program with its Members through ongoing consultation and further study with the XXXXXXXXXX.

PROPOSED TRANSACTION

18. The Organization will amend the eligibility requirements of the Program to include:

XXXXXXXXXX.

The above-noted eligibility requirements will be effective on XXXXXXXXXX. As such, any Member considering making an application for XXXXXXXXXX under the Program on or after XXXXXXXXXX will have to meet these additional eligibility requirements. For greater certainty, there will be no other changes to the Program and no part of the Organization's income will be payable to or otherwise available for the personal benefit of any Member.

PURPOSES OF THE PROPOSED TRANSACTION

19. The main purpose of the proposed transaction is XXXXXXXXXX.

RULING

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction, and purposes of the proposed transaction, and provided further that the proposed transaction is completed in the manner described above, we rule as follows:

The proposed transaction set out above, which amends the eligibility requirements for an Eligible Member to receive XXXXXXXXXX payments under the terms of the existing Program described above, will not, in and of itself, cause the Organization to cease to be an entity described in paragraph 149(1)(1).

The above ruling is subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the proposed transaction is implemented prior to XXXXXXXXXX. The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act and the Income Tax Regulations which, if enacted, could have an effect on the ruling provided herein.

COMMENTS

1. Nothing in this advance income tax ruling should be construed as implying that the CRA has reviewed or is making a determination or ruling in respect of:

(a) Whether the Organization is, or has been for any particular period, exempt from income tax under Part I pursuant to paragraph 149(1)(1). In this regard, we note that the determination of whether the Organization does, in fact, operate exclusively for any purpose other than profit with no part of its income payable to or otherwise available for the personal benefit of any Member for any particular period remains a question of fact that must be determined on an on-going basis. Such determinations fall within the responsibility of the CRA's Compliance Programs Branch; and

(b) Any tax consequences in relation to any facts or proposed transactions referred to in this letter other than those specifically described in the ruling given. We note that payments made to Eligible Members under the Program from any funds other than the Members' Fees allocated to the Account, may result in the Organization ceasing to be an entity as described in paragraph 149(1)(l).

Yours truly,

XXXXXXXXXX
Acting Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch