Non-Profit Organization

Administrative Policy

21 August 2019 GST/HST Interpretation 195314 - Member-funded societies

NPO cannot subsidize fees to it members with facility-use fees charged to non-members – but isn’t tainted by potential liquidating distribution to members until used

The Societies Act enacted in B.C. in 2015 contemplated a “member-funded society” that is funded primarily by its members to carry on activities for their benefit, e.g., sports clubs, golf courses and professional associations, and that is permitted to distribute assets to its members if the society winds up. S. 2(2) of the Act provides: “A society must not have, as one of its purposes, the carrying on of a business for profit or gain, but carrying on a business to advance or support the purposes of a society is not prohibited by this subsection.”

Would a member-funded society qualify as a non-profit organization?

CRA indicated that s. 2(2) satisfied the “organized solely for a purpose other than profit” requirement, and that whether it was operated solely for a purpose other than profit was a question of fact. In this regard, CRA stated:

Per Policy Statement P-215, an “entity may carry on an income-generating activity and still qualify as a non-profit [organization]. To qualify, the income-generating activity must be carried on, and the resulting income must be used by the entity, to achieve its declared non-profit objectives.” A society would need to ensure that the business is not its purpose, but a means to an end, and is not carried on for profit.

Respecting the requirement that “no part of the person’s income is payable to, or otherwise available for the personal benefit of, any … member,” CRA stated:

[I]f the facility of a member-funded society is used by non-members and the income resulting from the non-members’ fees is used to subsidize the members’ fees, this could be a distribution in furtherance of its purposes. In these circumstances, income of the entity is considered to be payable to, or otherwise available for the personal benefit of, its members and the entity would not qualify as a non-profit organization under subsection 123(1).

Regarding the application of this non-distribution condition to the possibility that provision could be made for winding-up distributions to members, CRA stated:

Where the member-funded society chooses to distribute its remainder to its members, it would breach the [above] third condition when the decision to dissolve or to be liquidated is made. The possibility to distribute to its members upon dissolution or liquidation does not affect a determination that an entity may be an NPO prior to the decision to dissolve or liquidate.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 17 professional membership is not excluded 255

12 March 2013 Ruling Case No. 138581

A corporation did not qualify as a non-profit organization as it was not organized solely for a purpose other than profit: it was established as a corporation with share capital and without any statement that it was organized for non-profit purposes, and there was no statutory prohibition against it either operating on a for-profit basis or allowing any part of its income to be payable or otherwise available to its shareholders. Furthermore, almost half of its income comes from fees earned for its service and income earned on the sale of its products. These sources of income have allowed it to generate substantial operational surpluses.