13 July 2011 Internal T.I. 2011-0405541I7 - Condo Corporations; Cell Towers

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.

Principal Issues: Whether a cell tower arrangement jeopardizes the tax-exempt status of a condominium corporation.

Position: No, as long as the income is the income of the unit owners not the corporation. Otherwise, it may.

Reasons: Provincial law - unit owners are owners of common areas as tenants in common. Cell tower income either belongs to unit owners or is available for the personal benefit of unit owners.

									July 13, 2011

	Small & Medium Enterprises Directorate		HEADQUARTERS
	Specialty Audit Section					Income Tax Rulings
									  Directorate
	Attention:  Rubin Dressler				E. Erskine
									(613) 957-8973

									2011-040554

Condominium Corporations - Telecommunications Towers

We are writing in response to your request for our views with respect to the tax implications of residential condominium corporations entering into arrangements to rent space to telecommunications providers. We understand that these arrangements generally involve the telecommunications provider paying rent in order to set up and maintain a telecommunications tower (a "cell tower") on space that forms part of the common area of the condominium building or premises. You have asked whether entering into such an arrangement will result in the condominium corporation failing to qualify for the tax exemption provided by paragraph 149(1)(l) of the Income Tax Act (the "Act"). You have indicated that the amounts paid by the telecommunications providers for the use of the space are generally significant and directly connected to a reduction in members' (i.e., unit owners') condominium fees.

In order to qualify for the tax exemption provided by paragraph 149(1)(l) of the Act, a condominium corporation must meet all of the conditions of that provision, that is, the corporation must be organized and operated exclusively for any purpose other than profit, and none of its income can be available for the personal benefit of its members. The courts have recognized that an organization claiming a paragraph 149(1)(l) exemption can earn a profit, as long as the profit is incidental and arises from activities directly connected to its not-for-profit objectives. For example, maintaining reasonable operating reserves or bank accounts required for ordinary operations will generally be considered to be an activity undertaken to meet the not-for-profit objectives of an organization. Consequently, incidental profit arising from these reserves or accounts will not affect the tax-exempt status of an organization and such profit generally is not taken into account in determining whether income is available for the personal benefit of a member.

Although we agree with you that, based on this analysis, cell tower arrangements may jeopardize the tax-exempt status of a condominium corporation, we are of the view that in many cases the income is not the income of the corporation but is instead the income of the unit owners. While each case would have to be reviewed separately on its facts and applicable provincial law, it appears that in most situations the space being rented does not belong to the corporation; rather, the corporation may be better viewed as acting as an agent for the unit owners in entering into any cell tower arrangements. If this is the case, then such arrangements generally would not jeopardize the tax-exempt status of the corporation, although the related profit would have to be allocated appropriately among unit owners for tax purposes.

Section 66 of the Strata Property Act of British Columbia (S.B.C. 1998, c.43) provides:

"An owner owns the common property and common assets of the strata corporation as a tenant in common in a share equal to the unit entitlement of the owner's strata lot divided by the total unit entitlement of all the strata lots."

Similarly, subsection 11(2) of the Condominium Act of Ontario (S.O. 1998, c.19) provides:

"The owners are tenants in common of the common elements and an undivided interest in the common elements is appurtenant to each owner's unit."

As a final example, subsection 6(2) of the Condominium Property Act of Alberta (R.S.A. 2000, C-22) provides:

"The common property comprised in a registered condominium plan is held by the owners of all the units as tenants in common in shares proportional to the unit factors for their respective units."

In paragraph 3 of Interpretation Bulletin IT-304R2, "Condominiums" ("IT-304"), the CRA sets out its long-standing position with respect to the income of condominium corporations and states, in particular:

"Income from other sources or activities, such as interest earned on the corporation's operating or reserve funds or rental and other incidental income is income of the corporation (however, see paragraph 4 for comments on the status of a residential condominium corporation as a non-profit corporation)."
[Emphasis added.]

Consequently, we are of the view that incidental income from the rental of common areas may be treated as income of the condominium corporation and generally will not affect the tax-exempt status of the corporation. Incidental, in this context, means both minor and directly related to activities undertaken to meet the corporation's not-for-profit objectives of managing and maintaining the condominium property and required reserves.

Income that is not incidental will usually be considered to be income of the unit owners, if this is appropriate under the relevant provincial law. Where the relevant provincial law indicates that the income is the income of the corporation, then we agree that the corporation may not be tax-exempt pursuant to paragraph 149(1)(l) of the Act. In particular, we share your concern that income from a cell tower arrangement would likely be available for the personal benefit of members of the corporation through a material reduction in members' condominium fees.

We trust that these comments will be of assistance to you.

Yours truly,

Eliza Erskine
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch