9 March 1992 Income Tax Severed Letter 9200445 - NPO - Subsidiary Owned By

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: NPO-SUBSIDIARY OWNED BY Section(s): 149(1)(1)]

XXX 920044 L. Holloway Toronto, Ontario (613) 957-2104

Attention: XXX

March 9, 1992

Dear Sirs:

Re: Paragraph 149(1)(1) of the Income Tax Act (the “Act”) & IT496

This is in reply to your letter dated December 23, 1991, requesting our interpretation in respect of the activities of your client the XXX and whether a corporation owned by the XXX qualifies as an non-profit organization as defined in paragraph 149(1)(1) of the Act.

In particular, you presented the following facts:

XXX

Our Comments

The particular circumstances outlined in your letter involve an actual taxpayer and specific transactions. As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions involving specific taxpayers other than in the form of advanced income tax rulings. As this situation involves actual transactions, the tax exempt status of these organizations should be discussed with an audit official of your local district taxation office. We are therefore not in a position to give you a definitive answer to your questions. We will however, provide the following general comments which may be of assistance to you.

In Interpretation Bulletin IT-496, Non-Profit Organizations, the Department has outlined some of the factors that are considered relevant in determining the exempt status of an entity under 149(1)(1) and under what circumstances such an entity would lose its exempt status.

As pointed out in this Bulletin, one of the characteristics of an activity that might be indicative of a trade or business is that the organization's goods or services are not restricted to members and their guests. In our view, this statement is generally valid when the organization's goods and services are offered to others with a profit motive in mind, and particularly where the association competes with taxable entities.

In a situation where income is received from renting space in excess of that currently needed by an organization in a building that it owns or leases and in turn sub-lets, the exempt status of such an organization could be jeopardized. Generally, we would not be concerned when an organization rents space in its building which is in excess of its current needs to carry out its objects. We would be concerned, however, when an organization acquires property that is considerably in excess of what it might reasonably be expected to need in the foreseeable future, that the property may have been acquired for the purpose of earning income. Depending on the nature of the organization and the use to which these profits are put, this may or may not be objectionable.

We would also like to point out that it is possible for a non-profit organization to control a taxable corporation without necessarily losing its own status as an non-profit organization. Conversely, the tax exempt status of a corporation is not determined by the status of its controlling shareholder. That is, a corporation owned by a nonprofit organization does not automatically become a non-profit organization, but rather must so qualify in its own right.

We trust these comments will be of assistance to you.

Yours truly,

E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch