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:
1. Can the by-laws of a housing co-operative provide for payment of patronage dividends to its members without the co-op losing its exempt status as a non-profit organization (NPO) under paragraph 149(1)(l)? Is there an administrative position that would allow a housing co-operative to keep its exempt status as an NPO under paragraph 149(1)(l) even though its by-laws permit it to pay patronage dividends to its members?
Position:
1. No. The housing co-op would lose its exempt status as an NPO under paragraph 149(1)(l) if its by-laws permitted the payment of patronage dividends to its members. There is no departmental administrative position which would allow the housing co-operative to keep its exempt status when it does not meet the conditions of paragraph 149(1)(l).
Reasons:
See E5c7396 and 9527275. In accordance with paragraph 149(1)(l), in order for an organization to qualify as an NPO, no part of the NPO's income can be payable to or otherwise available for the personal benefit of any proprietor, member or shareholder. If the by-laws of the NPO permit patronage dividends to be paid to its members, the co-op would lose its exempt status as an NPO under paragraph 149(1)(l). I called Phil Jolie in Audit on March 6, 1998, and confirmed that they do not have any administrative position which would permit a housing co-operative which is an NPO to keep its exempt status under paragraph 149(1)(l) under these circumstances.
973319
XXXXXXXXXX G. Moore
March 13, 1998
Dear XXXXXXXXXX:
Re: Housing Co-operatives and paragraph 149(1)(l) of the Income Tax Act
This is in reply to your letter of November 13, 1997, concerning paragraph 149(1)(l) of the Income Tax Act (the "Act") and housing co-operatives. We understand your main concern to be whether a housing co-operative would lose its exempt status as a non-profit organization (NPO) under paragraph 149(1)(l) of the Act if its corporate by-laws are amended to permit patronage refunds to be paid to its members or shareholders.
You have submitted a document where article XXXXXXXXXX of the Co-operative's by-laws contemplates the "payment of a patronage refund or distribution of a sum in adjustment of rentals paid or allocation of a sum for adjustment of rentals" to all shareholders who are occupants of housing accommodation owned and operated by the Association. As you know, paragraph 149(1)(l) of the Act requires that in order to qualify as an NPO, no part of an NPO's income may be payable to, or otherwise available for the personal benefit of any proprietor, member or shareholder. In our view, a housing co-operative would not qualify as an NPO for tax exempt status under paragraph 149(1)(l) of the Act if its by-laws permit the payment of patronage refunds to its shareholders. The Department does not have an administrative position that would permit a housing co-operative to be exempt from tax as an NPO under paragraph 149(1)(l) of the Act in a situation where the co-operative's by-laws permit the payment of patronage refunds to its members or shareholders.
We trust our comments will be of assistance to you.
Yours truly,
J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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