10 July 1994 External T.I. 9414975 - NON-PROFIT CORPORATIONS

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.

Principal Issues:

Whether a corporation incorporated under the Nova Scotia Companies Act would qualify as a non-profit corporation for income tax purposes.

Position TAKEN:

Possibly, if it meets the conditions of paragraph 149(1)(l).

Reasons FOR POSITION TAKEN:

In order to qualify as a non-profit corporation, a corporation must meet the definition under paragraph 149(1)(l).

		5-941497
XXXXXXXXXX	C. Chouinard

Attention: XXXXXXXXXX

July 10, 1994

Dear Sir:

Re: XXXXXXXXXX

We are writing in reply to your letter of May 9, 1994 addressed to the Halifax District Office that was referred to us for reply.

You have requested the Department's opinion as to the manner in which the XXXXXXXXXX should restructure in order to qualify as a non-profit corporation for purposes of the Income Tax Act (the "Act").

XXXXXXXXXX

The Rulings Directorate of Revenue Canada provides advance income tax rulings to taxpayers where proposed transactions are involved and gives technical interpretations of the various provisions of the Income Tax Act and the Income Tax Regulations. The Department does not, however, provide tax planning advice. As your request for information is in the nature of tax advice, we cannot respond specifically to your query. We are, however, prepared to offer the following general comments.

To qualify for exempt status under paragraph 149(1)(l) 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 under paragraph 149(1)(l) of the Act. A determination of whether an association was

operated exclusively for and in accordance with its non-profit purposes in a particular taxation year must be based on the facts of each case which can be obtained only by reviewing all of its activities for that year. Such a determination cannot be made in advance of or during a particular year but only after the end of the year. An organization that qualifies for exemption in a particular year may cease to qualify in a subsequent year by failing to meet the requirements of paragraph 149(1)(l) of the Act. A review of this nature is conducted by officials of the local District Taxation Office who are in a better position to appreciate all the circumstances of the case.

Generally, the Department is of the view that an organization is not operated exclusively for non-profit purposes when its principal activity is the carrying on of a trade or business. Some characteristics of an activity that might be indicative of a trade or business are as follows:

• it is a trade or business in the ordinary meaning, that is, it is operated in a normal commercial manner;
• its goods or services are not restricted to members;
• it is operated on a profit basis rather than a cost recovery basis; or
• it is operated in competition with taxable entities carrying on the same trade or business.

Moreover, to qualify for the exemption pursuant to paragraph 149(1)(l), no part of the income of an organization can be paid or payable or otherwise made available for the personal benefit of any member. An organization may fail to comply with this requirement in a variety of ways, such as where:

• the organization distributes income during the year, either directly or indirectly, to or for the personal benefit of any member;
• the organization has the power at any time in the current or future years to declare and pay dividends out of income; or
• the organization, in the case of a winding-up, dissolution or amalgamation, has the power to distribute income to a member.

We cannot comment on whether a corporation incorporated under the Companies Act of Nova Scotia would qualify as a non-profit corporation for income tax purposes, however, if it met the above-mentioned conditions, it would likely qualify as such.

Unless as otherwise stated, all references to statute are to the Income Tax Act, S.C. 1970-71-72, c.63, as amended and consolidated to June 10, 1993.

We trust that these comments will be of assistance.

Yours truly,

A.M. Brake
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch