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.
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Re: Non-Profit Organizations
This is in reply to your letter of October 15, 1990 and further to our telephone conversations of October 17 and 19, 1990 requesting a written interpretation of certain facts in connection with a non-profit sporting or recreational organization (the "NPO") of which you are a member.
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Our Comments
As discussed, our comments are not in the form on an advance income tax ruling, however, it is clear that you are discussing actual, proposed transactions of a specific taxpayer upon which we rarely comment. As this is the case our comments will be of a very general nature.
Normally having surplus funds in excess of an NPO's current needs could endanger its NPO status. However, in exceptional case where a special project requires a time period in excess of the current and prior year to accumulate the necessary funds, we would expect such funds to be accounted for in a separate special project fund until sufficient funds are accumulated to carry out the specific special project. The special project fund should consist of at least two separate accounts to be held at a Canadian financial institution. All monies received by the special project fund representing the capital of the fund should be credited to one account and all revenues earned on those monies should be maintained in a separate account. Funds to complete the project should be taken first from the second (interest or other revenue) account and then from the capital account. The accounting records should be able to track these accounts at all times. It is possible that the District Taxation Office may consider it necessary to request waivers in respect of the NPO to ensure that those years during which the funds are accumulated do not become statute barred before the special project is carried out.
A refund to a member from a surplus in a special project capital account would not, providing it did not exceed the total amount contributed by the particular member, affect a NPO's exempt status. It should be noted, however, that the refund must only come from the capital account. This would be to avoid any suggestion that, in the case of a refund, income was made payable to or was otherwise available for the personal benefit of a member.
An NPO that is described in subsection 149(5) is taxable on its property income to the extent indicated in that subsection. Provided that it uses the funds accumulated in its special projects capital fund for that project, or to provide the refunds to members described above (taking care not to make any of the income available for the benefit of any of the members), or to further the objects and purposes of the NPO, there should not be any other tax consequences.
We trust our comments will prove helpful in this matter.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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