8 April 1998 External T.I. 9804875 - NON-PROFIT ORGANIZATIONS

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 the non-profit status of a corporation operating a housing project would be jeopardized if a resident of the project becomes a director and therefore a member of the corporation pursuant to the by-laws of the corporation.

Position:

Pursuant to paragraph 149(1)(l) of the Act, the non-profit status of the corporation would be jeopardized if any part of the corporation’s income is made available for the personal benefit of any of its members, including any members who are sitting on the corporation’s board of directors.

Reasons:

Wording of paragraph 149(1)(l) of the Act.

XXXXXXXXXX                                                       	5-	980487
J. Leigh

April 8, 1998

Dear Sir:

Re: Non-Profit Organizations

This is in reply to your letter of February 17, 1998 which was forwarded to us for reply by the Winnipeg Tax Services Office.

In your letter, you made reference to your letter of December 15, 1997 in which you requested a copy of a letter dated November 4, 1987 written by Mr. W.R. McColm of our office to XXXXXXXXXX. Since your request relates to a specific taxpayer, we are unable to accede to your request due to matters of confidentiality. However, we note that copies of technical interpretations and other material issued by the Directorate are available under the Access to Information Act, subject to certain restrictions on the release of confidential client information and the payment of applicable fees. If you would like more information in this regard, you may call the office of the co-ordinator Access to Information at (613) 957-8819. An alternative would be for you to ask XXXXXXXXXX to provide you with a copy of the letter.

You also asked whether the tax exempt status of XXXXXXXXXX would be jeopardized if a resident of XXXXXXXXXX sits on the board of directors of XXXXXXXXXX and hence becomes a member of that corporation pursuant to its by-laws. As noted above, we are not able to comment on the income tax aspects related to any specific taxpayer’s situation due to matters of confidentiality. However, we can provide you with the following general comments which are not binding on the Department.

Generally, paragraph 149(1)(l) of the Income Tax Act (the “Act”) provides an exemption from Part I tax for the taxable income of an organization, other than a charity, that was both organized and operated exclusively for any combination of activities relating to social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. To qualify for the exemption, no part of the income of the organization may be paid or otherwise made available for the personal benefit of any proprietor, member or shareholder of the organization unless the proprietor, member or shareholder was another organization whose primary purpose and function was the promotion of amateur athletics in Canada.

In our view, the fact that a resident of a housing project operated by a particular entity becomes a director and therefore a member of the entity will not, in and by itself, jeopardize the entity’s status as a non-profit organization for the purposes of paragraph 149(1)(l) of the Act. However, if the entity’s income is made available for the personal benefit of any member, its non-profit status will be disqualified. For example, if the entity directly or indirectly distributes its income over the course of the year to a member or for the member’s personal benefit, the entity will lose its non-profit status. However, it is the Department’s view, as set out in paragraph 12 of Interpretation Bulletin IT-496, that certain types of payments such as salaries, wages, fees or honorariums for services rendered to an entity will not, in and by themselves, disqualify the entity from being exempted, provided that the amounts paid are reasonable and in line with those paid in arm’s length situations for similar services. It is a question of fact whether an entity has complied with the requirements in paragraph 149(1)(l) of the Act.

We have enclosed a copy of Interpretation Bulletin IT-496 for your information.

We trust that the above comments will be of assistance.

Yours truly,

Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosure