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:
Will a corporation (the "Corporation"), to be established as part of the XXXXXXXXXX, qualify for exemption as a non-profit organization under paragraph 149(1)(l)?
Position TAKEN:
1.No, if, as indicated by Charities Division, the Corporation could qualify as a charitable organization (and, therefore, as a "charity" as defined in subsection 149.1(1)).
2.Even if we were to assume that the Corporation is not a charity (as requested by Charities Division), we were nonetheless not provided with sufficient information in order to establish whether the Corporation could meet the other requirements of paragraph 149(1)(l). However, we provided general comments. We also provided general comments on paragraph 149(1)(d), as we were not provided with sufficient information to establish whether, as an alternative, this provision could apply.
Reasons FOR POSITION TAKEN:
1.In order to qualify for exemption under that paragraph 149(1)(l), the organization must not, in the opinion of the Minister, be a charity within the meaning assigned by subsection 149.1(1). As outlined in paragraph 4 of IT-496, this is so whether or not it is a "registered charity" as defined in subsection 248(1) of the Act.
2.Positions taken in other files, and in IT-496 and IT-347R2.
April 17, 1997
Charities Division HEADQUARTERS
M. Azzi
Attention: J. O'Neil 957-8953
7-971000
XXXXXXXXXX
This is in reply to your memo of April 11, 1997, wherein you requested our views on whether a corporation (the "Corporation"), to be established as part of the XXXXXXXXXX, will qualify for exemption as a non-profit organization under paragraph 149(1)(l) of the Income Tax Act (the "Act").
XXXXXXXXXX
You indicate that, in your view, the Corporation could qualify as a charitable organization (and, therefore, as a "charity" as defined in subsection 149.1(1) of the Act).
In order to qualify for the exemption under paragraph 149(1)(l) of the Act, an organization must, inter alia, be "a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1)..." As outlined in paragraph 4 of IT-496, Non-Profit Organizations, this is so whether or not it is a "registered charity" as defined in subsection 248(1) of the Act. Thus, if, as indicated above, the Corporation could qualify as a charity, it cannot qualify for the exemption under paragraph 149(1)(l) of the Act. However, as you know, as a charity it may be registered and qualify for exemption under paragraph 149(1)(f) of the Act.
As discussed (Azzi/O'Neil), even if we were to assume that the Corporation is not a charity, we have nonetheless not been provided with sufficient information in order to establish whether the Corporation could meet the other requirements of paragraph 149(1)(l) of the Act. However, as requested, we offer the following general comments which may be of assistance.
To qualify for tax exempt status under paragraph 149(1)(l) of the Act, the organization must both be organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. A determination of whether the organization was organized exclusively for exempt purposes would require an examination of the organization's enabling documents. These documents may include letters patent, articles of incorporation, memoranda of agreement, by-laws, articles and so on.
As indicated in paragraph 10 of IT-496, a determination of whether an entity was operated exclusively for, and in accordance with, its non-profit purposes in a particular taxation year is based on the facts of each case. This information can be obtained only by reviewing, during the course of an audit, 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 (and a review of this nature would generally be conducted by officials of the local Tax Services Office).
Finally, to qualify under paragraph 149(1)(l) of the Act, no part of the income (as defined in subsection 149(2) of the Act) of an organization, whether current or accumulated, may be made available for the personal benefit of any member of the organization. As indicated in paragraph 11 of IT-496, an organization may fail to comply with this requirement in a variety of ways, such as where:
a)the organization distributed income during the year, either directly of indirectly, to or for the personal benefit of any member;
b)the organization has the power at any time in the current or future years to declare and pay dividends out of income; or
c)the organization in the case of a winding-up, dissolution or amalgamation has the power to distribute income to a member.
We would therefore need to review any relevant documents (enabling documents or by-laws, for example) relating to the winding-up, dissolution or amalgamation of the Corporation, in order to establish whether it could meet the restriction regarding the availability of income.
In closing, we also wish to note that we have not been provided with sufficient information in order to establish whether, as an alternative, the Corporation may qualify for exemption under paragraph 149(1)(d) of the Act. A corporation may qualify pursuant to paragraph 149(1)(d) of the Act where, for instance, at least 90% of the capital of the corporation is owned by Her Majesty in right of Canada or a province or by a Canadian municipality. In order to establish whether this provision could apply we would need details as to the ownership of the capital of the Corporation and all other relevant information such as the identity of the members, the structure of the Corporation, who controls the Corporation and details regarding asset distribution on winding-up or dissolution. We would also need to establish that no person other than Her Majesty in right of Canada or a province or a Canadian municipality has any right to acquire any capital of the Corporation.
We trust that these comments will be of assistance.
John F. Oulton
Section Chief
Business, Property and Employment Section II
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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