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.
933525
XXXXXXXXXX D. Zion
Attention: XXXXXXXXXX
March 23, 1994
Dear Sirs:
Re: Non-Profit Organizations
Subparagraph 149(1)(l) of the Income Tax Act (the "Act")
This is in response to your correspondence of September 30, 1993, requesting our interpretation regarding whether a corporation owned by a labour union (the Union) which itself is exempt from taxation under paragraph 149(1)(k) of the Act would qualify as a non-profit organization pursuant to paragraph 149(1)(l) of the Act. We apologize for the delay in responding.
You have provided the following facts:
1.The corporation has been formed solely to hold legal title to real property, being land and building occupied by the Union which itself is exempt under subparagraph 149(1)(k) of the Act.
2.The issued and outstanding shares of the corporation are beneficially owned in trust for the Union.
3.The corporation has purchased certain land and building, all of which is rented to the Union.
4.The purchase of the land and building was financed entirely by funds advanced from the Union.
5.The operations of the corporation are managed by the Board of Directors of the Union.
It is your understanding that the above corporation is exempt from taxation pursuant to subparagraph 149(1)(l) of the Act and thus, any net profit from the rental of the premises to the Union would not be taxable.
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 an advance income tax ruling. As this situation involves completed transactions and the main issue is dependent on the facts of a specific case, 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 the comments that follow unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993.
Under the provisions of paragraph 149(1)(l) of the Act, in order to qualify for the exemption, a taxpayer must have been organized as well as operated exclusively for social welfare, civic improvement, pleasure or recreation or for any purpose except profit and no part of its income may be available for the personal benefits of any member, shareholder or proprietor thereof (except as specifically permitted). If there is provision for a distribution to the shareholders on windup, the organization would not qualify under paragraph 149(1)(l) of the Act.
In Interpretation Bulletin IT-496 Non-Profit Organizations (the Bulletin), the Department has outlined some of the factors that are considered relevant in determining the exempt status of an entity under 149(1)(l) of the Act and the circumstances under which an entity would lose its exempt status. More specifically, paragraphs 6 and 8 of the Bulletin comment on the expression "any other purpose except profit" contained in paragraph 149(1)(l) of the Act, and indicate that this requirement would not be met if the excess of the earnings of an organization is beyond its reasonable needs and such excess, at any time, is accumulated and invested from year to year. As indicated in paragraph 10 of the Bulletin, whether or not the corporation was, in any particular taxation year, "operated exclusively for any purpose except profit" is a question of fact that can only be determined retrospectively.
We would like to mention that the tax exempt status of a corporation is not determined by the status of its controlling shareholder. That is, a corporation owned by a tax exempt or non-profit organization does not automatically become a non-profit organization, but rather must so qualify in its own right.
We trust that our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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