31 March 2014 External T.I. 2014-0516981E5 - Advanced Income Tax Ruling Request

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: Why ruling could not be provided and 149(1)(l) concerns.

Position: No ruling can be provided and there are some concerns as to whether 149(1)(l) requirements are met.

Reasons: See below.

XXXXXXXXXX
2014-051698
Rob Meers
(613) 957-2100

March 31, 2014

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of December 12, 2013 in which you request an advance income tax ruling on behalf of the above-named taxpayer. As explained during our telephone conversation (XXXXXXXXXX/Filion), we are unable to provide the ruling.

As outlined in Information Circular 70-6R5 "Advance Income Tax Rulings and Technical Interpretations" an advance income tax ruling is a written statement given by the Directorate to a taxpayer confirming how the Canada Revenue Agency ("CRA") will interpret and apply specific provisions of Canadian income tax law to a definite transaction or transactions that the taxpayer is proposing to undertake within a specified time period. Your submission does not include a transaction.

You asked us to determine whether XXXXXXXXXX would qualify for a tax exemption pursuant to paragraph 149(1)(l) of the Income Tax Act (the "Act"). In general terms, paragraph 149(1)(l) of the Act 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 member or shareholder.

Whether any particular organization has met the above requirements for any specific time period is a question of fact that can generally only be determined on audit at the end of a taxation year. As the determination can generally only be done after considering all the activities of the taxpayer during a year, we are not able to provide an advance ruling confirming that the taxpayer operated in a manner which satisfies the requirements. While we are unable to provide a ruling we do offer the following comments which may be of some assistance to you.

The CRA generally reviews an organization's constating documents, such as its articles of incorporation, by-laws and other relevant documents when determining how the organization is organized. These documents provide information as to the objects of the organization and, in some instances, how the organization will be operated. In addition, how the assets will be distributed upon the dissolution of the organization and whether the organization is authorized to pay dividends or make other payments to its members will be relevant when determining whether income of an organization is available for the personal benefit of its members.

The constating documents were not included with your submission and there was no indication in your submission as to whether the constating documents contained any references as to whether XXXXXXXXXX is organized or operated without a profit purpose or that it is restricted in its ability to pay out any income to members or shareholders. It is notable that even the shareholders appear to be uncertain as to whether the organization is organized and operated with a purpose other than profit (XXXXXXXXXX).

An organization will not be exempt from tax pursuant to paragraph 149(1)(l) of the Act if earning profits is a purpose of the organization, even if the profits are destined to support the not-for-profit purposes of the organization or another organization. This "destination of funds" argument has been rejected by the CRA and the courts on numerous occasions for 149(1)(l) organizations. XXXXXXXXXX.

We trust that these comments are of assistance.

Yours truly,

Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch