22 August 1989 Administrative Letter 74096 F - Membership Fees in Trade 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.

Subject:  24(1)

This is in reply to your memorandum of July 4, 1989, requesting us to respond to a memorandum from H. Gutenplan concerning our opinion on the deductibility of contributions to the "expansion program" and the tax position of the 24(1).

A)     Deductibility of Contributions

     We cannot agree with your conclusion that contributions by members would be deductible to them. Interpretation Bulletin IT-211R, which you quoted, states that membership fees in trade organizations will be allowable deductions from income if they can reasonably be shown to relate to the earning of income from the..business or property, however contributions to the 24(1) are voluntary contributions towards a building fund, not having, in our view, any business purpose.  Gifts are generally not recognized as outlays made for the purpose of gaining or producing income from a business unless the taxpayer is able to demonstrate a direct relationship between the gifts and the sales that resulted from them.

     Although the stated objectives of 24(1) contributions made by the members would not be deductible unless that organization was a charity within the meaning a signed by subsection 149.1(1). As you have mentioned, neither 24(1)  organizations listed in 110.1(1)(a) or 118.1(1) of the Act. In order to meet the definition of "charitable" the organization must have' as its objectives one or more of the following aims: the relief of poverty, the advancement of religion, the advancement of education, or the advancement of other purposes beneficial to the community. It appears that the 24(1) does not have any charitable purpose, but you may wish to refer the matter to the Registration Division.

B)     Taxability of the 24(1)

     It is your view that.. if the organization is considered an extension of the 24(1) it may qualify for exempt status under paragraph 149(1)(e) of the Act. However the organization is not a 24(1)  Thus, in our view it must look to 149(1)(l) of the Act for possible exemption. One criterion provided for by paragraph 149(1)(l) is that the corporation must not be a charity within the meaning assigned by subsection 149.1(1) of the Act. Assuming that the Registration Division confirms that the objects and statement of activities provided by you do not reflect the activities of a charity, we would also advise that paragraph 8 of Interpretation Bulletin IT-496 should be considered. 21(1)(b)  In such a case, the corporation would not meet the operated exclusively" test in paragraph 149(1)(l) of the Act and would not qualify as a non-profit organization within the meaning of that paragraph.

     Furthermore, to qualify for exemption under paragraph 149(1)(1) of the Act, an organization must not only be organized exclusively for non-profit purposes but it must in fact be operated in accordance with these purposes in each year for which it seeks exemption.  A determination can only be made based on the facts of each case and such a determination cannot be made in advance of, or during a particular year, but only after the end of the year.

     If the 24(1) were tax exempt by virtue of paragraph 149(1)(l) of the Act, we agree that subsection 149(5) of the Act would not apply as the main purpose of the 24(1) C is not dining, sporting or recreational facilities for its members.

We trust our comments are of assistance.

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch