11 January 1990 Income Tax Severed Letter AC74452 - Status as a Non-profit Organization

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.

JAN 11 1990

HEAD OFFICE - APPEALS BRANCH         Specialty Rulings
Appeals & Referrals Division           Directorate
                                     Business and General
J.E. Nordin                            Division
                                     C. Tremblay
                                     957-2095

24(1)                                7-4452
Status as a Non-Profit Organization
Paragraph 149(1)(l) of the Income Tax Act ("The Act")

This is in reply to your memorandum of October 20, 1989, requesting our comments prior to finalizing your reply to the Department of Justice.

                          24(1)

                   21(1)(b)      23
Our Comments

In order for the organization to qualify for exempt status under paragraph 149(1)(l) it must be both organized and operated exclusively for any other purpose except profit, and no part of the income may be available for the personal benefit of any member.

The organizational structure and purpose of the organization in
our view satisfies the requirement that it must be organized for
"any other purpose except profit". To maintain an exemption under
paragraph 149(1)(l) of the Act, however, the activities must be
consistent with these aims. Where an organization is engaged in
operations designed to make a profit, it cannot qualify as having
been organized and operated exclusively for any other purpose
except profit unless there is a causal relationship between the
profit-making activity and the exempt purpose of the
organization.
                    24(1)
             This clear distinct causal relationship would be
lacking, however, where the profits are accumulated and not used
to achieve the organization's declared exempt objectives.

It is quite possible for an organization to make profits. Indeed, paragraph 149(1)(l) assumes the organization would be taxable under Part I, otherwise there would be no need for this paragraph in the Act. Many non-profit organizations must have a regular and reliable source of income in order to continue to operate as a viable self-supporting organization.

                       24(1)

In recent decisions the courts have been applying the purpose
test.  In Tourbec (1979) v M.N.R. 
88 DTC 1442 (TCC), the court
held that the corporation was carried on for profit because the
corporation's non-profit ("philanthropic") purpose was viewed as
incidental to its profit-making activities. In our view, the
profit making venture
                   24(1)

Consequently, in our opinion, provided that the commercial operation is incidental to the attainment of the organization's non-profit objectives and all the revenues generated by the commercial operation are used to fund the non-profit activities of the organization, the organization may carry on commercial operation and still be considered to be operating exclusively for non-profit purpose.

We are returning the Orange File Folder containing the 1977 to 1983 T2 returns of the taxpayer as requested.

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch