24 June 1996 Ruling 9608073 - WHETHER ORGANIZATION CURRENTLY EXEMPT?

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:

Requested to rule that organization will continue to be exempt under paragraph 149(1)(l) after proposed incorporation.

Position:

Taxpayer asked to establish that organization qualified for exemption prior to proposed incorporation.

Reasons:

Onus of proof on taxpayer to establish assumption that organization qualified for exemption prior to proposed incorporation.

									3-960807
XXXXXXXXXX							Wm. P. Guglich

Attention: XXXXXXXXXX

June 24, 1996

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letters of February 28 and March 28, 1996 wherein you requested an advance income tax ruling on behalf of the above taxpayer.

In XXXXXXXXXX your February 28, letter, you state that XXXXXXXXXX is a non-profit association exempt from income tax pursuant to paragraph 149(1)(l) of the Act and that XXXXXXXXXX proposes to carry on the same activities after incorporation as it currently carries on. In XXXXXXXXXX you requested that we rule that the proposed transaction, which is the incorporation of XXXXXXXXXX will not, in and by itself, affect the tax status of XXXXXXXXXX under paragraph 149(1)(l) of the Act and XXXXXXXXXX will continue to be exempt.

In XXXXXXXXXX, you have made the assumption that XXXXXXXXXX currently qualifies for exemption under paragraph 149(1)(l) of the Act and, since it will continue to carry on the same activities, XXXXXXXXXX would continue to qualify for exemption after incorporation. In order that we may address the issue of whether the incorporation of XXXXXXXXXX will affect its status under paragraph 149(1)(l) of the Act, please provide us with your interpretation of paragraph 149(1)(l) of the Act to support your assumption that XXXXXXXXXX currently qualifies for exemption.

To qualify for exempt status under paragraph 149(1)(l) of the Act an organization must, inter alia, be both organized and operated exclusively for one or more of the purposes described therein. The purpose for which an organization was organized may be established in advance by examining the instruments by which it was created, which may include letters patent, articles of incorporation, memoranda of agreement, by-laws, articles and so on. The determination of whether an organization was operated exclusively for and in accordance with its non-profit purposes in a taxation year, is a question of fact to be determined based on its activities for the year. To qualify for exempt status under paragraph 149(1)(l) of the Act, an organization must establish that it meets all the conditions therein. In our view, XXXXXXXXXX, based on its current activities, may not meet any of the operated exclusively tests described in paragraph 149(1)(l) of the Act, in that XXXXXXXXXX may not be considered to be operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit.

XXXXXXXXXX

We are not aware of any provision in the Act which provides for this tax treatment. Without identification of a specific provision of the Act, and your interpretation of that provision we will be unable to rule on this issue. As stated in paragraph 3 of Information Circular 70-6R2: "An advance ruling is a written statement given by the Department to a taxpayer stating how it will interpret specific provisions of existing Canadian income tax law in its application to a definite transaction or transactions which the taxpayer is contemplating.".

Yours truly,

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