30 November 1996 Ruling 9625363 - NPO

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 U.S. Corporation (exempt from Federal income tax under 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3) of the Code) that proposes opening a Canadian branch is a non-profit organization for purposes of paragraph 149(1)(l) of the Act. Of most concern was whether the entity is a charity within the meaning of subsection 149.1(1) of the Act. The remaining issue is whether the corporation was "organized exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, and no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, shareholder thereof...".

Position:

A particular entity does not necessarily have to be eligible for registration as a charity in order that it be considered not to be a charity within the meaning of subsection 149.1(1) of the Act. This matter was referred, with clarification, to our Charities Division to make the determination and they opined that it was not a charity within the meaning of subsection 149.1(1) of the Act. We have given confirmation that it is properly organized as a NPO.

Reasons:

It is the Objects, Articles and Structure of XXXXXXXXXX itself and not merely the proposed branch that was the subject of the request, since, in our view, where a branch of a non-resident entity is involved, `the corporation or trust' or `organization' referred to is the non-resident entity itself. The matter of whether it was a charity was referred to our Charities Division who responded that it was not a charity. The facts support that it was organized for purposes other than profit and that no part of its income is otherwise available to its members (XXXXXXXXXX as set out in paragraph 6 of the ruling).

XXXXXXXXXX							962536
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-mentioned taxpayers with respect to the proposed transactions described below.

We understand that, to the best of your knowledge and that of the taxpayers, none of the issues raised in this ruling is being considered by a Tax Service Office or Taxation Centre in connection with an income tax return already filed, is the subject of any notice of objection or is under appeal.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. XXXXXXXXXX.

For U.S. federal income tax purposes it is classified as a private foundation which is exempt from income tax under section 501(a) of the Internal Revenue Code (the "Code") on the basis that it is a corporation organized and operated exclusively for educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual, within the meaning of section 501(c)(3) of the Code.

2. XXXXXXXXXX.

3. XXXXXXXXXX.

4. XXXXXXXXXX.

5. XXXXXXXXXX.

6. Relevant sections of Article XXXXXXXXXX of the Articles of Incorporation include:

XXXXXXXXXX.

XXXXXXXXXX.

Proposed Transactions

7. Having regard to the foreign interest XXXXXXXXXX applied for and obtained a private letter ruling from the Internal Revenue Service, dated XXXXXXXXXX, 1996 (the "U.S. Tax Ruling") confirming, in part, that the extension of its activities outside the United States will not affect its exempt status under section 501(c)(3). Having received the U.S. Tax Ruling, XXXXXXXXXX.

8. Under the proposal,

XXXXXXXXXX.

9. In order to run the Canadian branch operation, XXXXXXXXXX would provide one of its employees on an indefinite loan basis. This employee would be expected to devote approximately XXXXXXXXXX% of his or her time to the Canadian branch. With respect to such activities, the employee would be treated as an employee of XXXXXXXXXX. All costs associated with the provision of such services would be borne by the Canadian branch.

10. It is currently expected that the Canadian branch would present workshops to approximately XXXXXXXXXX participants annually. Potential faculty candidates would be selected in the same way as U.S. participants (i.e., applicants will be screened by an independent board and none of the faculty candidates would be employees of XXXXXXXXXX). It is anticipated that XXXXXXXXXX faculty candidates would be trained each year. Although some of the workshop attendees could be employees of XXXXXXXXXX, such persons would be admitted on the same basis as the general public.

11. It is anticipated that XXXXXXXXXX will provide support to the Canadian branch operation through the provision of necessary travel funds for faculty candidates and attendees, and for other expenses incurred by the Canadian branch in conjunction with the presentation of the workshops. XXXXXXXXXX may also obtain additional funds to offset increased operating costs associated with the expansion of its activities in Canada in the form of direct contribution to its endowment from XXXXXXXXXX. The Canadian branch will operate on a cost recovery basis.

Purposes of the Proposed Transactions

12. The activities of the branch operation would be directed towards

XXXXXXXXXX.

In effect, the Canadian branch would be an extension of the U.S. operation, which is itself exempt from U.S. federal income tax as a corporation organized and operated exclusively for educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

13. XXXXXXXXXX.

XXXXXXXXXX.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that all the proposed transactions are carried out as described above, our rulings are as follows:

A. We confirm that XXXXXXXXXX will be considered to be organized for social welfare, civic improvement, or any other purpose except profit with no part of the income payable or otherwise available for the personal benefit of any person so that in any year in which it in fact operates on that basis (this being a matter on which we do not rule since it is a question of fact the determination of which can only be made retrospectively for each taxation year), it will qualify for that year as a non-profit organization under paragraph 149(1)(l) of the Act and thus be exempt from Part 1 tax upon its, otherwise, taxable income.

B. We confirm that amounts expended by XXXXXXXXXX to offset the expenses incurred by the Canadian branch in respect of the operation of the workshops or the increased operating costs associated with XXXXXXXXXX expansion of the facility program through the Canadian branch, will be deductible in computing XXXXXXXXXX taxable income for purposes of Part 1 of the Act to the extent that such expenses are reasonable under the circumstances and are incurred to earn income from its business.

This ruling is subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and is binding on the Department provided that the Canadian branch of XXXXXXXXXX is established by XXXXXXXXXX.

Yours truly,

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

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