23 March 1992 Income Tax Severed Letter 9203885 - Non-profit Organization - Union/Management Committee

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: NON-PROFIT ORG - UNION/MGT COMMITTEE Section(s): 149(1)(1)]

XXX 920388 L. Holloway (613) 957-2104

Attention: XXX

March 23, 1992

Dear Sirs:

Re: XXX

This is in reply to your letter dated January 2, 1992, requesting our opinion with respect to the taxation of investment income earned by XXX

In particular you requested confirmation that it was not necessary to report, for Income Tax purposes, interest earned by XXX on funds that were not currently needed by the committee.

Our Comments

In order for an organization to be tax-exempt pursuant to paragraph 149(1)(1) of the Income Tax Act (the "Act"), a committee must be both organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any purpose except profit. To establish the purpose for which a committee was organized, the Department will normally look to its enabling documents, i.e. articles of association, by-laws. The Department is not prepared to comment on whether or not an association is organized to meet the requirements for exemption without reviewing the instruments by which it was created.

The phrase "any other purpose except profit" is interpreted as applying to organizations that are organized and operated for other than commercial or financial reasons. In this regard, even if the objectives of an association indicate that only a part of the operations of an association are carried on for the purpose of earning profits for its own benefit, the association would not qualify as a non-profit organization pursuant to paragraph 149(1)(1) of the Act, because the association was not organized exclusively for any other purpose except profit. Any profit earned must be incidental to its non-profit purposes. We have included for your information Departmental Interpretation Bulletin IT-496 entitled Non-Profit Organizations, as this IT describes the requirements and restrictions of Non-Profit Organizations in greater detail.

Assuming that the condition of being organized for any other purpose except profit is met, a non-profit organization is permitted to earn income in excess of its expenditures. However, as stated in paragraph 8 of IT-496

• "if a material part of the excess is accumulated each year and the balance of the accumulated excess at any time is greater than the association's reasonable needs to carry on its non-profit activities, the Department will consider profit to be one of the purposes for which the associated was so operated."

In conclusion we are not prepared to issue an opinion on whether or not interest earned on funds not currently being used by the XXX is taxable. We would be pleased to examine the enabling documents of the XXX in order to determine whether or not the committee has been organized for any purpose other than profit. The non-profit status of an organization will be dependent however on its ongoing satisfaction of the criteria in paragraph 149(1)(l) of the Act. The determination of whether an entity was operated exclusively for and in accordance with its non-profit purposes in a particular taxation year must be based on the facts which can only be obtained by reviewing all of its activities for the fiscal period for which it seeks to be exempt from tax. Such a determination cannot be made in advance of, or during a particular year, but only after the end of the year.

We trust that these comments are of assistance.

Yours truly,

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

bcc. N. Ellis
Enquiries & Office
Examination
Sydney District Office