4 September 1991 Ruling 911461 F - Subsection 149(5) of the Income Tax Act

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.

Dear Sirs:

Re:  Subsection 149(5) of the Income Tax Act (the "Act")

This is in reply to your letter of May 27, 1991 and further to our telephone conversation of July 08,1991 requesting a technical interpretation of the clause in subsection 149(5) of the Act that reads "...the main purpose of which was to provide dining, recreational or sporting facilities for its members...", as it relates to the specific hypothetical fact situation described below.

Our understanding of the hypothetical situation is as follows:

(1)  An unnamed Association is a non-profit organization pursuant to paragraph 149(1)(1) of the Act which carries on, without pecuniary gain, neighbourhood minor hockey for children of various ages.

(2)  The association organizes hockey for between 500 and 2000 children. The children pay $100-$150 per session and play 20-25 games. The fees collected are used primarily to pay for arena ice rental from the municipality, with other minor costs, for team sweaters, goalie equipment, etc.

(3)     Since fees are collected at the beginning of the season (prior to October) while expenses are incurred in the period October through April, there is excess cash in the fall and winter which is invested in interest earning securities (Term Deposits and G.I.C's).

It is your view that the association is not subject to taxation under subsection 149(5) of the Act since it has no actual physical sporting facilities of its own but rather only rents the arena from the municipality for the purpose of either hockey practices or the playing of organized hockey games, and thus it does not have as a main purpose the provision of "...dining, recreational or sporting facilities for its members..."  In a telephone conversation 19(1) Larochelle) you briefly discussed the case of Manitoba Curling Association Inc. v MNR, T.C.C. 1984 DTC 1462, and its similarity to your situation.

Our Comments

We do not agree that in your hypothetical example the association's main purpose would not to be to provide facilities for its members. Unlike the Manitoba Curling Association case, the provision of facilities could be viewed as this association's main purpose and thus it would be subject to tax on its property income under subsection 149(5) of the Act. The Manitoba Curling Association was a governing body whose main purpose was to organize its members and promote the sport of curling. The provision of facilities by such an organization would be an occasional and infrequent activity, whereas a hockey association's main purpose would be to organize ice time for its member leagues as you have described.

If the association devotes the majority of its time, resources and efforts in the organization and operation of various competitions for its members, and, facilities are either owned, rented or donated by its members for such events, the Department's view is that in these situations the main purpose of the association or club is the provision of sporting facilities for its members. Consequently, the association's activities would be such that subsection 149(5) of the Act applies and its property income in excess of $2,000 would be subject to tax. We would expect that many associations in the circumstances you describe would avoid the application of subsection 149(5) of theAct through prepayment of expenses such as arena ice rental.

Non-profit organizations of the type described in subsection 149(5) of the Act must file T3 returns in respect of their property income. In addition, non-profit organizations which are corporations must file T2 returns as required by subsection 150(1) of the Income Tax Act even though tax exemption under paragraph 149(1)(1) of the Act is being claimed.

The above expression of opinion is based on the limited information given in your letter, however the facts of a particular situation may result in a different conclusion.

We trust this information will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch