10 May 2005 External T.I. 2005-0125531E5 - Condo NPO disposes of caretaker suite

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: If a condominium, which is an NPO, sells its caretaker's suite, will it be taxable on the resulting capital gain?

Position: Likely not.

Reasons: An NPO is exempt from tax on income. However, an NPO whose main purpose is the provision of dining, recreational or sporting facilities for its members will be taxable on its income from property to the extent that:

* the income exceeds $2,000 and
* the income is not a capital gain resulting from the disposition of property used exclusively in the course of providing the dining, recreational or sporting facilities to the NPO's members.

2005-012553
XXXXXXXXXX Renée Shields
(613) 948-5273
May 10, 2005

Dear XXXXXXXXXX:

Re: Condominium Corporation as a Non-profit Organization

This is in response to your letter of April 6, 2005 requesting confirmation that your client, a strata corporation will not be taxable on the disposition of its caretaker suite.

The situation outlined in your letter relates to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. However, given that the situation you are describing involves a specific taxpayer and an already completed transaction, your proper course of action should be to submit all relevant facts and documentation to the appropriate Tax Services Office for their views. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

The CRA's general views regarding non-profit organizations ("NPO's") are contained in Interpretation Bulletin IT-496R "Non-profit Organizations" and in IT-83R3 "Non-profit Organizations - Taxation of Income from Property". These bulletins and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca.

To be an NPO, an organization must satisfy certain legislative requirements. It must be organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. The earning of profit will not automatically result in an organization ceasing to qualify as an NPO. The determinative factor is whether the earning of profit is an end in itself or a means by which the organization achieves its stated exempt objectives. As a further requirement, no part of the organization's income can be payable to or otherwise available for the personal benefit of any proprietor, member or shareholder thereof. Whether a particular organization qualifies as an NPO is always a question of fact. As stated in paragraph 6 of IT-496R, a residential condominium corporation will generally qualify as a tax-exempt NPO, however we are not in a position to confirm this in regard to your client.

Where an entity meets the organizational and on-going operational requirements of the NPO definition, it is exempt from tax on its income. However, an exception to this rule exists for an NPO whose main purpose is the provision of dining, recreational or sporting facilities for its members. Pursuant to subsection 149(5) of the Income Tax Act, such an NPO is deemed to be an inter vivos trust and will be taxable on certain income from property and capital gains. If an NPO does not have as its main purpose the provision of dining, recreational or sporting facilities for its members, this provision will have no effect.

Even though an NPO may be exempt from tax, it is still required to comply with certain filing requirements. As pointed out in paragraph 15 of IT-496R, a T2 Corporation Income Tax Return or T2 Short Return is required every year if the NPO is a corporation. The "General Index of Financial Information" ("GIFI") is an alternative to traditional financial statements that would normally accompany the T2 Corporation Income Tax Return. A T3 Trust Income Tax and Information Return is required if the NPO is a deemed inter vivos trust which has tax payable or which has disposed or realized a taxable capital gain on the disposition, of any capital property that is not used directly in the course of providing dining recreational or sporting facilities to its members. Furthermore, an NPO may be required to file Form T1044, Non-profit Organization (NPO) Information Return if certain conditions are met. These conditions are described in detail in the CRA Guide T4117 entitled, "Income Tax Guide to the Non-profit Organization (NPO) Information Return."

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch