Principal Issues: 1. Is the land disposed by a tax-exempt NPO considered property used exclusively for and directly in the course of providing dining, recreational or sporting facilities for its members for the purposes of subparagraph 149(5)(e)(ii)? 2. Would the investment income earned on the proceeds from the sale of land affect the organization's eligibility for the tax exemption under paragraph 149(1)(l) of the Act? 3. Would reducing member fees using funds from the disposition of property or from investment income earned on those funds be considered making income available for the personal benefit of a member?
Position: 1. Question of fact, but likely. 2. Question of fact. 3. Question of fact, but likely not.
Reasons: 1. Provided the property was the main parking lot or the facility, then it likely qualifies for the exception in subparagraph 149(5)(e)(ii) of the Act 2. It is the CRA's long-standing view that a tax-exempt NPO may earn passive investment income without affecting its NPO status. A NPO that aggressively earns investment income to fund non-profit activities likely will not be considered to be operating for any purpose other than profit. 3. If the capital gain is used to reduce membership fees, then it would not be considered making income available to members because subsection 149(2) excludes the taxable capital gain realized by Club in determining whether income is available for the personal benefit of a member. If the earnings from investing the proceeds of disposition are used to reduce membership fees, it will likely not be considered making income available to members as long as the earnings are considered, incidental profits. Incidental profits are generally not taken into account in determining whether income is available for the personal benefit of a member. It is a question of fact whether the earnings would be considered incidental profits.
