21 February 1996 External T.I. 9527275 - PROVISIONS APPLICABLE TO NON-PROFIT HOUSING CO-OP

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 non-profit housing co-operatives are exempt by virtue of paragraph 149(1)(n) or paragraph 149(1)(l) of the Act.

Position TAKEN:

Question of fact which must be determined at the end of a period, however, could be exempt under 149(1)(l).

Reasons FOR POSITION TAKEN:

The co-operatives fail to meet the requirements for exemption under 149(1)(n) in that their activities do not relate directly to the business of constructing, holding and managing low-cost rental projects. It appears that the particular co-operative was organized exclusively for social welfare thereby meeting the requirements of paragraph 149(1)(l).

L. Barrows
XXXXXXXXXX		 952727

Attention: XXXXXXXXXX

February 21, 1996

Dear XXXXXXXXXX:

Re: Filing Requirements for a Non-Profit Housing Co-operative

Your letter of September 15, 1995 addressed to XXXXXXXXXX Tax Services Office was referred to this Directorate for response. In your letter, you requested our opinion on whether non-profit housing co-operatives are exempt by virtue of paragraph 149(1)(n) of the Income Tax Act (the "Act") or paragraph 149(1)(l) of the Act. As you noted, if exempt by virtue of paragraph 149(1)(l) of the Act, annual filing of an information return is required pursuant to subsection 149(12) of the Act.

To assist us in providing this opinion, you made available copies of the following documents:

-Section 56.1 Agreement for Canada Mortgage and Housing Assistance to Non-Profit Housing Associations with references to a particular co-operative deleted;

-As an example of a typical co-operative, the Articles of Incorporation of XXXXXXXXXX (the "Co-operative");

-General By-Laws of the Co-operative;

-By-Law No. 2 relating to the rights and obligations of the Co-operative and its members; and

-By-Law No. 3 respecting the borrowing of money, the issuing of securities and the securing of liabilities by the Co-operative.

Following a review of these documents, the following relevant information was obtained:

-The Co-operative was incorporated without share capital under The Co-operative Corporations Act, 1973, on XXXXXXXXXX

-The Co-operative will provide residential accommodations to persons the majority of which are members of the Co-operative who will occupy the housing units otherwise than as owners;

-The Co-operative will construct, operate maintain and improve and buy, lease, own, sell, convey, assign, mortgage or lease any real estate and any personal property necessary or incidental to the provision of the housing;

-The Co-operative will assist in the well being of the citizens of XXXXXXXXXX in particular, and to the betterment of the community at large;

-The membership fee is $5.00 per annum;

-The Co-operative will be carried on without the purpose of individual gain for its members and any profit will be used to promote its objects;

-The Directors shall serve as such without remuneration, and no Director shall directly or indirectly receive pay from his position as such; provided that a Director may be paid reasonable expenses incurred by him in the performance of duties;

-Upon dissolution of the Co-operative and after the payment of all debts and liabilities, its remaining property shall be distributed or disposed of to charitable organizations carrying on their activities solely within Canada;

-Reserve funds shall not be paid or in any way distributed to the members but shall be applied for such purposes as are consistent with the Articles of Incorporation;

-Pursuant to 56.1 of the National Housing Act, Canada Mortgage and Housing ("CMHC") may make contributions to subsidize a co-operative's mortgage interest charges in respect of units occupied by income-tested occupants. In order to be eligible for these subsidies, a co-operative must operate in accordance with the terms and conditions approved by CMHC. A minimum of 25% of the units are to be allocated to income-tested occupants.

We should advise that written confirmation of the tax implications inherent in a particular fact situation is only given by this Directorate when there is a proposed transaction which is the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. In addition, where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, in response to your request, we can provide the following general comments which are not binding on the Department.

Our Comments

Whether a co-operative is exempt under either paragraph 149(1)(n) or paragraph 149(1)(l) of the Act is a question of fact which can only be determined based on the specific facts on a case by case basis.

In order to qualify for exemption under paragraph 149(1)(n) of the Act, the following two conditions must be satisfied:

1.The co-operative must be a "limited-dividend housing company" as defined in section 2 of the National Housing Act. This section defines a limited-dividend housing company to be "a company incorporated to construct, hold and manage a low-cost rental housing project, the dividends payable by which are limited by the terms of its charter or instrument of incorporation to 5% per annum or less".

2.All or substantially all (at least 90%) of the co-operative's business must be in the construction, holding or management of low-rental housing projects. The purpose of this condition is to limit the exemption to only those corporations truly operating as limited-dividend housing companies.

Based on the above conditions, in our view, the particular Co-operative fails to meet the requirements for exemption under paragraph 149(1)(n) of the Act as its activities do not relate directly to the business of constructing, holding and managing low-cost rental projects.

As discussed in Interpretation Bulletin IT-496 (copy enclosed), in general, an exemption under paragraph 149(1)(l) of the Act is available to an organization, other than a charity, that was both organized and operated exclusively for any combination of activities relating to social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. In addition, no part of the organization's income may be paid or otherwise made available for the personal benefit of any member unless the member was another organization whose primary purpose and function was the promotion of amateur athletics in Canada. Based on our review of the objects and special provisions of the Articles of Incorporation, it would appear that the particular Co-operative was organized exclusively for social welfare or for the common good and general welfare of the people of the community and as such could qualify for exemption under paragraph 149(1)(l) of the Act.

However, whether the particular Co-operative was operated for and in accordance with its non-profit purposes in a particular taxation year is a factual determination to be made at the end of the particular period.

We trust these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure