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:
Social Welfare as opposed to Commercial Activities in context of paragraph 149(1)(l).
Position:
Question of Fact in each case.
Reasons:
For definition of social welfare see paragraph 5 of IT-496 and to the comments of Lord Denning in National Deposit Friendly Society (Trustees) v Skegness Urban District Council (1958) 2 All ER 601 at 614, HL; (also reported (1959) AC 293 at 322, 323) and the comments of Lord Keith of Avonholme in General Nursing Council for England and Wales v St. Marylebone Corpn (1959) 1 All ER 325 at 335, (also reported (1959) AC 540 at 563).
963350
XXXXXXXXXX Wm. P. Guglich
Attention: XXXXXXXXXX
June 13, 1997
Dear Sirs:
Re: Charitable and Non-Profit Organizations
This is in reply to your letter of October 3, 1996 wherein you requested our views, for purposes of paragraph 149(1)(l) of the Act, of social welfare as opposed to commercial activities described in paragraph 7 of IT-496 in the context of large corporations which in broad terms provide services for a fee that are necessary or desirable for the community.
To be tax-exempt under paragraph 149(1)(l) of the Act, an organization must be both organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or any other purpose except profit. Paragraph 7 of IT-496 states that an organization could not be considered to be operated exclusively for social welfare or non-profit purposes if its principal activity is the carrying on of a trade or business.
The determination in any specific case as to the purpose an organization is organized and operated for is a question of fact. In the case of Gull Bay 84 DTC 6040, the court held that the corporation was organized and operated exclusively for social welfare purposes and the logging operations were carried on to meet the social welfare objects. In contrast in the Tourbec (1979) Inc. case, 88 DTC 1442, the court held that the philanthropic aspect of the taxpayer's operations was only incidental to its primary purpose which was to carry on a travel agency business. In both of these cases, the subject organization carried on both philanthropic and commercial activities, but because of the divergent relevant facts in the two cases the findings of the courts are dissimilar.
As for the meaning of the words "social welfare", we refer you to paragraph 5 of IT-496 and to the comments of Lord Denning in National Deposit Friendly Society (Trustees) v Skegness Urban District Council (1958) 2 All ER 601 at 614, HL; (also reported (1959) AC 293 at 322, 323) and the comments of Lord Keith of Avonholme in General Nursing Council for England and Wales v St. Marylebone Corpn (1959) 1 All ER 325 at 335, (also reported (1959) AC 540 at 563).
We agree that the judgement in Briarpatch Incorporated v The Queen (1996) E.T.C. 2062 would be relevant in social welfare determinations. That is there must be a specificity of purpose to fall within the category of social welfare activities which constitute a benefit to the disadvantaged or the community in general.
Carrying on activities that are necessary or desirable would not, in and by itself, qualify as social welfare. For example, providing eye glasses to persons with sight impairment is desirable and necessary. However, the sale of such glasses at retail price or even at a discounted price (which is lower than the competitors) to the general public would not be social welfare, but providing the eye glasses for free to disadvantaged persons who otherwise could not afford them could be social welfare. It could also be said that operating a grocery store, a gas station, a hardware store, a pharmacy or car dealership are all necessary and desirable for the community but they are not necessarily social welfare activities. In general, providing services for a fee or selling goods to the general public would not qualify as social welfare activities.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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