19 January 1994 Administrative Letter 9325936 F - 149.1(1)(a)

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.

January 19, 1994

Charities Division     Head Office Application Examination Section      Rulings DirectorateMr. Bryan McLean      (613) 957-8953A/Chief

Attention:  Sandy Chartrand

XXXXXXXXXX

This is in reply to your memorandum of September 13, 1993 wherein you requested our views on the application for registration as a charity of XXXXXXXXXX particularly whether the unique manner in which the organization intends to raise funds disqualifies it from such registration.

Upon reviewing the documents you submitted, it appears that since XXXXXXXXXX will not itself carry on charitable activities, it will not qualify as a charity by virtue of it being a "charitable organization" within the meaning of paragraph 149.1(1)(b) of the Act, but rather will only qualify as a charity if it qualifies as a "charitable foundation" under paragraph 149.1(1)(a).

A charitable foundation is defined in paragraph 149.1(1)(a) as either a "corporation or trust constituted and operated exclusively for charitable purposes, no part of the income of which is payable to, or is otherwise available for, the personal use of any proprietor, member, shareholder, trustee, or settlor thereof and that is not a charitable organization."

There are two types of charitable foundations - private foundations, defined in paragraph 149.1(1)(f) as charitable foundations other than public foundations, and public foundations, defined in paragraph 149.1(1)(g) as those in which more than 50% of the trustees deal with each other and with each of the others trustees at arm's length and not more than 50% of the capital contributed or otherwise paid in to the foundation has been so contributed or otherwise paid in by one person or members of a group of such persons who do not deal with each other at arm's length.

From the documentation submitted, there is no indication either way whether the recipients of the funds which are to be disbursed by XXXXXXXXXX that is to say the "XXXXXXXXXX" described in XXXXXXXXXX are charitable organizations within the meaning of 149.1(1)(b). This fact would have to be established prior to any registration.

Assuming for the moment that all of the XXXXXXXXXX to whom XXXXXXXXXX will advance funds are charitable organizations, then XXXXXXXXXX classification as either a public or private foundation is of importance in the context of an examination of their fund-raising methods, since a private foundation is prohibited by subsection 149.1(4) from carrying on any type of business.

If we assume that XXXXXXXXXX is a public foundation, then 149.1(2)(a) provides that XXXXXXXXXX would not risk having their registration revoked by carrying on that business so long as it is a business related to the charity. The term "related business" is defined as including "a business that is unrelated to the objects of the charity if substantially all of the people employed by the charity in the carrying on of that business are not remunerated for such employment".

In the present case, if their fund-raising activities constitute a business, it would appear to qualify as a related business since none of the participants are being remunerated for their "employment".

If XXXXXXXXXX is a private foundation, then the issue of whether its fund-raising activities will constitute a business becomes of importance.

"Business" is defined in subsection 248(1) to include "a profession, calling, trade, manufacture, or undertaking of any kind whatever and...an adventure in the nature of trade but does not include an office or employment". In order to have a business it has been held that the operation must be operated for profit or with a reasonable expectation of profit. It is a question of fact whether XXXXXXXXXX at any particular time, can be said to be carrying on a business and such a determination can only be made retrospectively taking into account all of the circumstances.

XXXXXXXXXX unless his business expenses, which included items expended in this regard, have been reduced by a similar amount. Gifts-in-kind are discussed in Interpretation Bulletin IT-297R2.

We trust these comments will be of assistance.

Murray Brake for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Directorate