22 July 2002 External T.I. 2002-0135265 - NPO SOCIETY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether a certain society was organized for non-profit purposes and therefore exempt from income tax

Position: Likely yes

Reasons:

The society was organized for purposes of pleasure or recreation as outlined in its Constitution and By-Laws.

XXXXXXXXXX 								2002-013526
									Bob Naufal, CMA
(613) 957-2744
July 22, 2002

Dear XXXXXXXXXX:

RE: TECHNICAL INTERPRETATION REQUEST - TAX EXEMPT STATUS

This is in reply to our phone discussion (Naufal/XXXXXXXXXX ) on April 9, 2002 and your letter of April 14, 2002, wherein you requested our views regarding whether XXXXXXXXXX (the "Entity") qualifies as a non-profit organization pursuant to the Income Tax Act (Canada) (the "Act"). You provided several relevant documents with your letter.

Our Comments

The situation outlined in your letter and the related documents involve an actual fact situation. To the extent that it relates to past transactions you should contact the appropriate Tax Services Office of the Canada Customs & Revenue Agency (the "CCRA"), since the review of such transactions falls within their responsibility. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5.

As stated in paragraph 22 of Information Circular 70-6R5, written opinions are not advance tax rulings and, accordingly not binding on the CCRA. Therefore, while we cannot confirm the tax status of the Entity for purposes of the Act, we are prepared to offer the following general comments, which may be of assistance to you.

In general terms, paragraph 149(1)(l) of the Act provides an exemption from tax on the taxable income of a club, society or association (collectively hereinafter called "association"). The CCRA's position with respect to the application of paragraph 149(1)(l) is outlined in Interpretation Bulletin IT-496R, Non-Profit Organizations, a copy of which is included with this letter. Generally, an association is exempt from tax under Part I of the Act for a period throughout which the association complies with all of the following conditions:

(a) it is not a charity;

(b) it is organized exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit;

(c) it is in fact operated exclusively for the same purpose for which it was organized or for any of the other purposes mentioned in (b); and

(d) it does not distribute or otherwise make available for the personal benefit of a member any of its income unless the member is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.

To qualify under paragraph 149(1)(l) of the Act, an association must be both organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit. An association may also be organized and operated exclusively for any combination of these purposes. When determining the purpose for which an association was organized, the instruments creating the association will normally be reviewed. These instruments may include letters patent, articles of incorporation, memoranda of agreement, by-laws, and so on. To qualify for exemption, an association must not only be organized exclusively for non-profit purposes, but it must in fact be operated in accordance with these purposes in each year for which it seeks exemption under paragraph 149(1)(l). A determination of whether an association was operated exclusively for and in accordance with its non-profit purposes in a particular taxation year must be based on the facts of each case, which can be obtained only by reviewing 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 end of the year. An association that qualifies for exemption in a particular year may cease to qualify in a subsequent year by failing to operate in accordance with one of the purposes for which it was organized or by revising its objectives so that it is no longer organized in accordance with a purpose specified in paragraph 149(1)(l) of the Act.

As noted above, assurance as to the status of the Entity as a non-profit organization can only be provided by your local Tax Services Office after a thorough review of all of the facts. However, we have reviewed the general provisions governing all societies incorporated under the Society Act of XXXXXXXXXX and some of the relevant documents submitted with your letter, more specifically, the Constitution and By-Laws of the Entity. On the basis of this limited review, nothing has come to our attention that would cause us to believe that the Entity would not be considered to be organized in accordance with the provisions of paragraph 149(1)(l) of the Act providing for an exemption from Part I tax.

We trust these comments will be of assistance.

Mickey Sarazin C.A.

Manager, Aboriginal and Non-Profit Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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