19 November 2010 Internal T.I. 2010-0383001I7 - Meaning of "Operated"--149(1)(l)

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: When interpreting paragraph 149(1)(l) of the Act what meaning is given to the word "operated"?

Position: Operated means the way the organization's activities were undertaken in the past.

Reasons: Wording of paragraph 149(1)(l).

									November 19, 2010

	Charities Directorate					HEADQUARTERS
									Income Tax Rulings
	Attention:  Isaac Piotrkowski			  		Directorate
									L. Zannese
									(613) 957-2747

									2010-038300

Meaning of "Operated" in Paragraph 149(1)(l) of the Income Tax Act

We are writing in response to your email of October 7, 2010, in which you requested confirmation that the word "operated" contained in paragraph 149(1)(l) of the Income Tax Act (the "Act") means that the activities under review have already occurred. You based this view on the wording contained in Interpretation Bulletin IT-496R, "Non-Profit Organizations".

Our Comments

A review of our documents indicated that we have not previously specifically addressed the meaning of the word "operated", as it is used in paragraph 149(1)(l) of the Act, in the sense of your inquiry. After reviewing the full text of the exemption-in particular, the phrasing "[n]o tax is payable ... for a period when that person was ...operated exclusively..."-we are of the view that the determination of whether an organization meets the conditions for this exemption is based on completed activities, as the wording of the provision uses the term "was". This position is supported by one of our documents in which the author noted that there is a difference between "being organized for" and "being operated for"

"... the former relating to the letters patent or other documentary evidence of the organization's original purpose while the latter refers to a year by year examination of the organization's activities."

In addition, many of our documents discussing the application of the tax exemption found in paragraph 149(1)(l) of the Act are worded as follows:

"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 filing of a return reporting the operations and claiming exemption for the year having ended."

Therefore, when determining whether an organization qualifies for this exemption for any particular period, reference is made to the activities completed by the organization during that period. Consequently, we agree that the activities of an organization have generally already occurred at the time that a determination is made as to whether the organization "operated" exclusively for a purpose other than profit. We note that the Income Tax Rulings Directorate will not provide a taxpayer with an advance income tax ruling with respect to the "operated" test.

We hope that these comments will be of assistance.

Yours truly,

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