1 September 1989 External T.I. 58405 F - Trusts as Non-profit Organizations

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.

September 1, 1989

Dear Sirs:

Re:  Trusts as Non-Profit Organizations

This is in reply to your letter of July 19, 1989, in which you ask if a trust could qualify as a non-profit organization ("NPO") for purposes, we assume, of paragraph 149(1)(l) of the Income Tax Act.  You ask us to assume that no part of the income is payable to, or is otherwise available for, the personal benefit of the settlor or any of the trustees.  Further we are also to assume that the trust has been established for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit.

Our Comments

The conditions to be met in order to be exempt from taxation as an NPO are discussed in Interpretation Bulletin IT-496.  In this respect it could be argued that a trust could qualify as an NPO pursuant to the conditions set out in paragraphs 5 and 6 of IT-496; that is a trust could presumably be set up or be organized for social welfare, civic improvement, pleasure, or recreation or for any other purpose except profit.

We are also of the view that beneficiaries of a trust may be regarded as "members" or "proprietors" as those terms are used in paragraph 149(1)(l) of the Act and as referred to in paragraph 11 of IT-496, for the following reasons:

Black's Law Dictionary defines a "member" as:

     "one of the persons constituting a family ...; a partnership, association, corporation, guild, etc..."

and a "proprietor" as

     "one who has the legal right or exclusive title to anything.  In many instances it is synonymous with owner ..." (emphasis added)

This same dictionary defines "owner" as:

     "The person in whom is vested the ownership, dominion, or title of property; proprietor ...

     The word is not infrequently used to describe one who has dominion or control over a thing. the title to which is in another ...

     The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject-matter to which it is applied" (emphasis added).

As one can see from the above definitions a "member" or "proprietor" would include both the equitable owners, (the beneficiaries), and the legal owners (the trustee of a trust arrangement).

We are, however, of the further view that by the very nature of a trust, it would have difficulty meeting the NPO requirement that no part of its income, whether current or accumulated, may be made available for the personal benefit of any proprietor or member.  This is so because a trust is generally constituted to hold or manage property for the benefit of one or more beneficiaries.

We note in closing that where we do in fact issue advance income tax rulings with respect to non-profit organizations we only rule on the fact that it appears to be organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit.  We do not rule that it is operated for the purpose for which it was organized because as stated in paragraph 10 of IT-496, this is a question of fact the determination of which can only be made after the end of a particular taxation year.

We trust our comments will be helpful.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch