Section 149

Table of Contents

Subsection 149(1) - Miscellaneous exemptions

Paragraph 149(1)(a) - Employees of a country other than Canada

Administrative Policy

14 January 2014 External T.I. 2013-0510061E5 - Foreign doctors working in Canada

foreign-government-paid interns

Non-resident doctors, who come to Canada to participate in post-graduate residencies and sub-specialty fellowships at various Canadian medical schools, are paid a salary by the foreign government, but with a "top-up" amount paid by the respective university out of a fund provided in advance to the university by XX, in order to ensure that their salaries are equivalent to their Canadian counterparts under various collective agreements.

CRA found that under s. 149(1)(a):

the Doctors will not pay income tax under Part I of the Act on any of their taxable income, including investment income. For purposes of paragraph 149(1)(a), we will consider the top-up amount referred to above to be paid by the XX Government.

Paragraph 149(1)(c) - Municipal authorities

See Also

Laval Technopole v. Agence du revenu du Québec, 2018 QCCQ 6352

municipally influenced companies were agents of the municipality

Various companies in Quebec whose function it was to promote commercial development, or cultural, sporting or tourist activities, in their respective municipalities, were found to be subject to a higher rate of employer health tax because they were an agent (“organisme mandataire”) of a Canadian municipality in light of the application to them of the common law function and control tests for determining crown agency (referencing “the nature and degree of control that the Crown exercises over the entity” (para. 58).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(3) - Fully exempt interest - Paragraph (a) - Subparagraph (a)(iii) traditional common law tests of Crown agency applied in determining whether companies were agents of Canadian municipalities 268
Tax Topics - General Concepts - Agency 184

Administrative Policy

10 December 2014 Internal T.I. 2014-0533151I7 - Qualified Donee - XXXXXXXXXX

Park needs to demonstrate it is performing municipal-type services

A Park was established to encourage an appreciation and use of natural and recreational resources, was authorized under its constituting [Statute?] to make park bylaws and to appoint a constable to enforce them, was funded out of earmarked municipal levies and it was subject to oversight by representatives of participating municipalities or organizations, or volunteers as representatives to the Park. Before finding that the Park was a public body, and after stating that "the first condition is that the organization must be a municipal or public body and the second condition is that it must perform a function of government," CRA stated:

Generally, a public body has a governance purpose and is accountable to those governed, regulated or represented by it. ... [I]f a public body is incorporated, the federal government or a provincial or territorial government or the "public" that the corporation is serving or representing should have some specific control over the actions and operation of the corporation and the corporation should be accountable to that government and that public.

Respecting the second condition, CRA stated "providing a range of municipal-type services or providing a key service traditionally offered by the provinces or territories such as social services, oversight of the environment, health services, and education is generally considered to constitute performing a function of government," and then stated:

It is not sufficient to merely state that they are providing several municipal type services. A review of the Park's financial statements fails to show any significant expenditure on infrastructure such as roadways, buildings, and sewer systems it claims to be providing. …

In addition, while the Park… has not provided any evidence to support that they have in fact passed bylaws. …

Other evidence to support that the Park is performing a function of government may include:

  • a copy of an agreement with a neighboring municipality to provide fire protection or waste removal services,
  • invoices from organizations subcontracted to provide the municipal type services on behalf of the Park, and
  • the name of the municipality that is charged with collecting taxes on behalf of the Park and the agreement that governs the relationship.

2014 Ruling 2012-0473041R3 - First Nation - Limited Partnership

First Nation with elected council and performing functions of government

A First Nation is governed by an elected chief and band council, has passed by-laws respecting zoning, health and emergency measures, operates a health centre, provides fire protection and policing, delivers employment training and adult education programs and is Ruling that responsible for all aspects of housing on the Reserves. Ruling that income allocated to the First Nation from a limited partnership is exempt from tax because the First Nation is a public body performing a function of government.

2013 Ruling 2012-0472821R3 - 149(1)(c) Ruling

council of band chiefs

The Council, which is a governing body made up of the elected chief or other authorized designate (e.g. tribal chief) of the Band Council for each Band comprising the "Nation," is authorized by the Bands to speak for them and make decisions on their behalf with respect to issues important to the Nation, including resource issues (e.g., protection of ecologically sensitive lands on the "Territory") and government-to-government negotiations, has developed and enforced various codes and applies distributions from a trust for a range of matters including environmental, heritage, education and administration.

Ruling that it is a s. 149(1)(c) public body.

11 June 2014 Internal T.I. 2014-0521411I7 - 149(1)(c)

adoption of Tawich

In the course of a general discussion and before indicating that certain agencies and boards likely did not qualify, CRA stated:

The CRA's previous position was that an entity could be considered a municipality for the purpose of paragraph 149(1)(c) of the Act on the basis of the functions it exercises. However, in Tawich Development Corporation v. Deputy Minister of Revenue of Quebec [2001 D.T.C. 5144], the Quebec Court of Appeal found that merely exercising municipal functions was not sufficient to attribute to a body the status of a municipality. Instead, the Court held that this status could only be achieved as a result of statute, letters patent or order (in other words it has to be created by the province).

2013 Ruling 2013-0488661R3 - Indian Band -Public Body & Function of Government

Indian band

An Indian Band governed by an elected chief and band council, which provides a wide range of listed health, social, educational and economic services to its members, is ruled to be a public body performing a function of government in Canada within the meaning of s. 149(1)(c).

7 March 2013 Internal T.I. 2011-0428491I7 - Paragraph 149(1)(c)

policy guidelines re public body

A municipal body is typically considered to be a body established or exercising a power under a municipal act or a similar statute of a province or territory with respect to governing the affairs or purposes of a geographic area and is accountable to those governed by it.

Generally, a public body is:

  1. An Indian band as defined in the Indian Act with procedures to elect Chief and council.
  2. Other Aboriginal governments with election procedures.
  3. A body (whether incorporated or not, the members of which may be elected or appointed) established under or as a result of implementing a statute with specific authorization and duties assigned by the statute to the body to develop, administer or regulate governance functions.

A function of government generally means an activity or group of activities undertaken to meet a governance role or purpose within a geographic area. Historically, the CRA has required that to be performing a function of government an entity must have the ability and powers to govern, tax, pass by-laws and/or provide municipal- or provincial-type services to its members/citizens.

CRA has accepted that providing a range of municipal-type services, such as water, sewage removal, the pick-up of garbage and the maintenance of infrastructure such as roads, sewers and public buildings is a function of government. Further, providing a key service traditionally offered by the provinces or territories such as social services, overseeing of the environment, health services, and education is generally considered to constitute performing a function of government. The CRA also accepts that negotiating a treaty with the federal government, or a provincial or territorial government, is a function of government.

2012 Ruling 2012-0445071R3 - 149(1)(c) Ruling

First Nation

On behalf of a First Nation body, the correspondent sought tax-exempt treatment for the following:

36. The First Nation is currently negotiating the XXXXXXXXXX, as described in 33 above [the particulars of which were redacted], with the Government of Canada. Once an agreement is reached, the First Nation will be in receipt of a large amount of compensation funds from the Government of Canada pursuant to that agreement.

The First Nation has implemented a Financial Management by-law for the purposes set out in s. 83(1) of the Indian Act; is in the process of entering into a joint land code and transfer agreement with Aboriginal Affairs; and provides fire, ambulance, police, water, garbage collection, electricity and health procurement, community support and school bus services and "an extensive list" of "public works, social services and infrastructure programs." It also provides housing for eligible members and primary schooling, and has passed 24 by-laws pursuant to s. 81 of the Indian Act. In granting the requested ruling, CRA stated:

The First Nation is a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act and, accordingly, no tax will be payable under Part I of the Act by the First Nation on receipt of the compensation funds from the Government of Canada as described in 36 above.

2004 Ruling 2004-008032 -

S.149(1)(c) would apply to exempt income allocated to a First Nation band on a limited partnership interest held by it in a partnership engaged in fishing, given that the band would be considered to be a public body performing a function of government in Canada.

2004 Ruling 2004-006020 -

Ruling that a First Nation would be considered a public body performing a function of government in Canada, so that income attributed (under s. 75(2) or payable (under s. 104(13)) to it by a personal trust settled by it would be exempt.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 75 - Subsection 75(2) 50

4 August 1995 External T.I. 5-951992 -

"Indian band councils do not qualify as ... municipalities ... . They may, however, depending on all the circumstances, be a 'public body performing a function of government in Canada' and therefore be exempt from tax under paragraph 149(1)(c) ..."

92 C.R. - Q.36

Re Whether an Indian band council qualifies.


J. Peter Ranson, "The Evolution of Aboriginal Tax Exemptions: The Past, the Present and the Future", 2005 Conference Report, c. 24.

Sara K. McCracken, "Municipal Corporations: One Option for First Nations Businesses", Business Vehicles, Vol. VI, No. 3, 1999, p. 2406.

Paragraph 149(1)(d) - Corporations owned by the Crown

See Also

Nova Scotia Power Inc. v. The Queen, 2002 DTC 1432 (TCC)

A corporation ("NSPC"), which was described in s. 4 of the Power Corporation Act (Nova Scotia) "as agent of Her Majesty in right of the province", transferred its assets to the taxpayer in its 1993 fiscal period. NSPC (which previously had not filed any income tax returns as it was exempt on its taxable income) filed T2 corporate income tax returns for 1980 to 1993 in which it purported to elect under subsections 21(1) and (3) of the Act to capitalize interest as part of the capital cost of the depreciable assets it had transferred to the taxpayer. The capital cost of the transferred depreciable assets to the taxpayer was deemed under s. 85(5.1) to be its capital cost to NSPC.

The Minister assessed on the basis that NSPC carried on its income-earning activities as an agent of the Queen in right of Nova Scotia, with the result that the Act did not apply to it by reason of s. 17 of the Interpretation Act and, therefore, NSPC was not capable of filing income tax returns and making the election under s. 21; and that the exemption that NSPC enjoyed was derived from section 17 and not s. 149(1)(d) of the Act.

In responding to questions posed under s. 173 of the Act as to whether NSPC conducted its income-earning activities, and owned its assets, as agent for the Nova Scotia Crown, Bowman A.C.J. first found that, in the absence of s. 4 of the Power Corporation Act, NSPC did not conduct its activities or own its property as a Crown agent given that the Power Corporation Act treated NSPC as carrying on its own business and owning its own property separate from the province, and as being capable of borrowing money from the province. Respecting s. 4, the jurisprudence established that the words "agent of Her Majesty the Queen" did not go so far as to make NSPC an agent for all purposes and that the courts had been reluctant to confer Crown privileges and immunities on entities merely because they happened to be called agents of Her Majesty. The Power Corporation Act contrasted with other statutes which specifically stated that the property of a corporation or board and all profits earned in the administration of the same were property of Her Majesty. Accordingly, the answer to the questions was "no".

Otineka Development Corp. Ltd. v. The Queen, 94 DTC 1234 (TCC)

Two corporations carrying on business for profit that were owned by an Indian band were exempt under s. 149(1)(d) because the Indian band was a "municipality" within the ordinary meaning of that word, i.e., a "community having and exercising the powers of self-government and providing the type of services customarily provided by such a body". Bowman TCJ. stated (p. 1239):

"There can be no justification for interpreting the paragraph to deny the exemption to corporations owned by a band of Indians that has all the attributes of a municipality on the ground that it derives those attributes from the Indian Act rather than from one of the provincial statutes that regulate municipal institutions".

Words and Phrases

Administrative Policy

6 July 2001 External T.I. 2001-008157 -

It is CRA's position that a corporation that is a non-share corporation has its ownership determined with reference to the capital of the corporation; as the word 'capital' is not defined for this purpose, in determining the ownership of the corporation's capital CRA will look to factors such as the identity of the members, the structure of the corporation, who has the right to elect the board of directors, details regarding asset distributions on a winding-up or dissolution and whether a person other than the government has a right to acquire any capital of the corporation.

13 July 1995 External T.I. 5-950326 -

A regional district in B.C. is a Canadian municipality for purposes of s. 149(1)(d); and s. 149(1)(d) applies to a corporation owned by more than one municipality.

6 July 1995 External T.I. 3-943135 -

"The expression 'Her Majesty in Right of a Province' includes agents of Her Majesty in right of the province."

The expression "capital" does not include loans made to the corporation. "In our view, where the organization is a corporation with share capital, ownership is determined with reference to the corporation's shares and where it is a corporation without share capital, a commission or an association, ownership is determined with reference to the capital of the organization."

21 June 1995 External T.I. 5-950988 -

S.149(1)(d) is satisfied where at least 90% of the shares of the corporation are held by a combination of qualifying entities, eg., more than one municipality.

29 March 1994 T.I. 940775 (C.T.O. "Right of Redemption")

S.149(1)(d)(i) applies where a corporation, 90% of whose shares are held by the Crown, has the right to redeem those shares.

11 January 1993 Memorandum (Tax Window, No. 28, p. 19, ¶2387)

Because an Indian band council is not a municipality, a corporation at least 90% of whose shares are owned by a band council will not qualify for exemption under s. 149(1)(d).

8 September 1992 T.I. (Tax Window, No. 24, p. 16, ¶2182)

In order to qualify for the exemption, a corporation must actually be under the control of the municipality and not merely nominally owned by it.


J. Peter Ranson, "The Evolution of Aboriginal Tax Exemptions: The Past, the Present and the Future", 2005 Conference Report, c. 24.

Paragraph 149(1)(d.3) - 90% owned corporations

Administrative Policy

2003 Ruling 2002-016808 -

Ruling based on the interpretation that a corporation's capital does not include its indebtedness for purposes of s. 149(1)(d.3).

Paragraph 149(1)(d.4) - Combined ownership

Administrative Policy

12 October 2012 External T.I. 2011-0428521E5 F - Société d'État

(d.4) corp cannot be partly owned directly by Crown/capital (as contrasted to share) ownership is relevant only for non-share corps

In confirming that s. 149(1)(d.4) does not apply to a corporation a portion of whose shares are held by Her Majesty in right of Canada or a province, and another portion by a corporation, commission or association (an "Entity") to which one of s. 149(1)(d) to (d.4) applies, CRA stated (TaxInterpretations translation):

For an Entity to come within paragraph 149(1)(d.4), its shares (other than directors' qualifying shares) or capital must be owned by an Entity to which paragraphs 149(1)(d) to (d.4) apply. Where a part of the shares or capital of an Entity are owned directly by Her Majesty in right of Canada or a province, paragraph 149(1)(d.4) is not applicable. For example, an Entity whose shares or capital are owned partly by Her Majesty in right of Canada or a province and partly by an Entity to which paragraph 149(1)(d.1) applies, is not an entity contemplated by paragraph 149(1)(d.4).

In confirming that in the case of a share capital corporation, only the ownership of its shares is taken into account in the application of ss. 149(1)(d) to (d.4), CRA stated:

Where an Entity is one with share capital, it is the ownership of shares which is applied in determining whether the criteria stipulated in paragraphs 149(1)(d) to (d.4) are met. The ownership of capital of an Entity is applied only in the situations where the Entity is one without share capital.

Paragraph 149(1)(d.5) - Income within boundaries of entities

See Also

Lawyers' Professional Indemnity Company v. The Queen, 2018 TCC 194

LPIC not exempted under s. 149(1)(d.5) because its owner (the Law Society) merely regulated lawyers rather than governing Ontarians

The taxpayer, a subsidiary of the Law Society of Upper Canada (the “Law Society”), was an insurance company providing professional liability insurance to Ontario lawyers and law firms. It was agreed that it qualified for the exemption in s. 149(1)(d.5) provided that its owner (the Law Society) was a “public body performing a function of government in Canada.”

Respecting whether the taxpayer was a “public body,” D’Arcy J adopted (at para. 80) the “three-part English test,” namely, “the entity must have a duty to the public, it must be subject to a significant degree of government control and it must not use any of its profit for the personal benefit of its members.” The third test clearly was satisfied, and the other tests also were satisfied given (respecting the first test) that Trinity Western (2018 SCC 33) found that ss. 4.1 and 4.2 of the Law Society Act imposed a duty to the public on the Law Society and (respecting the second test) that s. 13 of such Act specified a guardianship role for the Ontario Attorney General and the government had appointment or approval rights respecting a minority of the benchers.

However, D’Arcy J found that the Law Society did not perform a function of government in Canada, stating (at paras 91, 95, 99 and 101):

In my view, a public body only performs a function of government in its specific geographical area if it performs the function as part of the governance of the public located in that specific geographical area. …

While the Law Society is required to have the public interest in mind when it carries out its regulating functions, this does not mean that it is performing a function of government. … The Law Society performs its various functions in the course of regulating the legal profession, not in the course of governing people located in Ontario. …

None of the functions of the Law Society constitute a legislative function. … [T]he Law Society … by-laws relate to regulating the legal profession in Ontario, not governing the people of Ontario.

[A] judicial function is only performed by a judge of one of Canada’s courts. …

Accordingly, the taxpayer was not entitled to the exemption under s. 149(1)(d.5).

Administrative Policy

5 January 2016 External T.I. 2015-0568911E5 F - MRC - Revenu d’entreprise

Quebec regional county municipality is municipality

A regional county municipality holds all of the capital in a corporation (“Corporation”) which will earn income from a paid service carried on by a partnership between it and a private corporation. Is the corporation exempt under s. 149(1)(d.5)? CRA responded (TaxInterpretations translation):

[A] "regional county municipality", which is an entity formed by letters patent issued by the Government of Quebec and which, following the adoption of the Land Use Planning and Development Act…, is expected to take care of the development of a territory, is a municipality for purposes of the Act. In this context, on the basis of the facts given, Corporation is 100% held by a municipality.

CRA went on to note that the Corporation nonetheless would not qualify for exemption if it was controlled (as described s. 256(5.1)) by an entity referenced in s. 149(1.3)(b).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 256 - Subsection 256(5.1) test references dominant person 84

2 December 1999 T.I. 991389

It remains the Department's view that indebtedness is not included in "capital". S.149(1.3) completely codifies the ownership test, rather than being in addition to ownership determined on general principles.


Sara K. McCracken, "Municipal Corporations: One Option for First Nations Businesses", Business Vehicles, Vol. VI, No. 3, 1999, p. 2406.

Paragraph 149(1)(e) - Certain organizations

Administrative Policy

2013 Ruling 2012-0438831R3 - 149(1)(e) Ruling

contract with commercial distributor for sales to farming producers

underline;">: Proposed transactions. An organization which previously had filed as an s. 149(1)(l) organization will contract with Distributor to set up a direct distribution network in Canada whereby it will receive a set fee from the Distributor for each item distributed to "Producers" (presumably, farming enterprises) across Canada mostly through a "sales order website…[which] will appear to be a website of the Organization, will in fact be a sales order system of the Distributor." The Organization will decide, with the Manufacturer of the items, the price at which the items are to be sold to the Producers, with the Distributor collecting the proceeds from the Producers, deducting its costs and remitting the remainder to the Organization. All services will appear to Producers as being supplied by the Organization, with the Distributor providing logistics on a national basis.


: Provided the Organization continues to meet the requirements described in paragraph 149(1)(e), income of the Organization from the sale of the XXXXXXXXXX, as a result of the proposed transactions above, will not, in and of itself, prohibit the Organization from being exempt from tax under Part I of the Act, pursuant to paragraph 149(1)(e).

11 June 1993 Memorandum (Tax Window, No. 32, p. 21, ¶2625)

RC would permit an agricultural organization that inadvertently made payments to its members to rectify the situation by requiring its members to make a capital contribution, with interest.

Paragraph 149(1)(f) - Registered charities


Canada v. Nova Scotia Power Inc., 2003 DTC 5090, 2003 FCA 33

Section 4 of the Power Commission Act (Nova Scotia) provided that the Nova Scotia Power Commission ("NSPC") "shall continue as a body corporate and as agent of Her Majesty The Queen in right of the province" under the name of "Nova Scotia Power Corporation". The respondent, which had acquired the undertaking of NSPC, sought to establish that NSPC was not an agent of the Crown, so that purported elections made by NSPC under s. 21 of the Act, to step up the capital cost of the depreciable assets transferred to the taxpayer pursuant to s. 85(5.1) of the Act, would be valid.

Pelletier J.A. noted (at p. 5096) that a finding that an entity is a Crown agency does not automatically lead to the conclusion that the entity enjoys Crown immunity (under s. 17 of the Interpretation Act or otherwise) and indicated (at p. 5096) that:

"Once a corporation is found to be an agent of the Crown, the question of Crown immunity turns on the scope of the corporation's mandate and whether, on the facts, it was acting within that mandate."

Here, NSPC had acquired and operated the assets pursuant to its objects of developing for Nova Scotia the maximum use of power on an economic and efficient basis with the result that the questions put to the Court should be answered on the basis that NSPC was acting within its authorize purpose so as to benefit from Crown immunity.

Paragraph 149(1)(i) - Certain housing corporations

Administrative Policy

11 July 1994 External T.I. 7-941446 -

Because the constitution for a housing corporation authorized it to provide accommodation to persons other than aged persons, it did not qualify. (If the constitution did not reflect its true purposes, the constitution should be revised.) It also was noted that the fact that the corporation operated on a non-profit basis and provided accommodation primarily to persons of low or modest income did not necessarily mean that the cost of such accommodation was low. "The phrase 'low-cost housing accommodation' has been interpreted to include comfortable but modest rental accommodation at rent levels which are low relative to rent levels generally available for similar accommodations (other than subsidized or non-profit accommodations) in the same community."

Paragraph 149(1)(j) - Non-profit corporations for scientific research and experimental development

Administrative Policy

21 February 2013 External T.I. 2012-0442751E5 F - Non-Profit SR&ED corporation

various stipulated s. 149(1)(j) requirements not stipulated in articles or by-laws

In the course of a general discussion, CRA noted that a s. 149(1)(j) organization need not be approved under s. 37(1)(a)(ii), and stated:

The [Third-Party Payments] Policy sets out the following criteria for a corporation to be considered a non-profit corporation for SR&ED:

  • The corporation's activities must be carried on without the purpose of gain for its members. Any profits or other accretions shall be used in promoting the corporation's objectives. No part of the income may be payable to or otherwise available for the personal benefit of any member thereof.
  • The directors and members, including any director or member who also serves as an officer, shall serve in that capacity without remuneration. No director, member, or officer shall directly or indirectly receive any profit from his / her position as director, member, or officer. However, it is permitted that a director or officer may be reimbursed for reasonable expenses incurred by him / her in the performance of his / her duties.
  • The corporation must not acquire control of any other corporation as defined in paragraph 149(8)(a) nor will it carry on any business as defined in subsection 248(1).
  • The objects of the corporation must be to only carry on and / or promote SR&ED. The SR&ED activity may be directly undertaken by, or on behalf of, the corporation, or by an approved association or a university, college, research institute or other similar approved institution.
  • The amounts to be expended in Canada on SR&ED must not be less than 90% of the corporation's gross revenue for the period as specified in subsection 149(9) and paragraph 149(8)(b).

Turning to the materials submitted, CRA stated:

According to paragraph XXXXXXXXXX of the General By-Laws, only directors receive no remuneration because of their mandate. We note that nothing in the General By-Laws or Letters Patent of the Corporation attached to your application clearly specifies a similar obligation for the Chief Executive Officer, the other members of the Board of Directors, or any other officer or shareholder of the Corporation. However, these people could receive reasonable compensation in another capacity such as, for example, researcher.

In addition, we also note that the criteria that, according to you, the Corporation meets regarding the application of paragraph 149(1)(j) and submitted in your request are not found in the By-Laws or the Corporation’s Letters Patent attached to your request.

Furthermore, paragraph XXXXXXXXXX of the Letters Patent, which provides that the Corporation may acquire and hold shares of corporations, must not contravene the criterion set out in paragraph 149(1)(j) to the effect that the corporation must not acquire control of another corporation.

In the event of the winding-up of the Corporation, Article XXXXXXXXXX of the Letters Patent of the Corporation indicates that the property will be vested in an organization carrying on a similar activity, without any other indication. Nothing in the Corporation's By-laws or Letters Patent specifies that in the event of a winding-up or dissolution of the Corporation, its property, after the payment of the debts, will be distributed to another entity described in clauses 37(1)(a)(ii) (A), (B), (C) or (E).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) - Paragraph 37(1)(a) - Subparagraph 37(1)(a)(ii) - Clause 37(1)(a)(ii)(A) requirements for approval under (A) or (B) of research association 192

5 May 1995 External T.I. 5-942198 -

Discussion of distinction between an approved research institute (s.37)(1)(a)(ii)(B)) and a non-profit corporation described in s. 149(j).

19 October 1993 Memorandum 932981 (C.T.O. "Approved for Scientific Research")

Discussion of criteria to be met by a corporation if it is to be considered a non-profit corporation for scientific research and experimental development.

18 May 1993 T.I. (Tax Window, No. 31, p. 8, ¶2517)

Discussion of criteria for determining whether approval of a research institute or similar organization will be granted.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 37 - Subsection 37(1) 11

4 August 1992 T.I. (Tax Window, No. 23, p. 9, ¶2166)

Criteria of RC for determining whether a corporation qualifies.

11 January 1990 T.I. (June 1990 Access Letter, ¶1278)

The corporation seeking exemption under s. 149(1)(j)(ii) must expend at least 90% of its income on SR&ED, in addition to not carrying on any business. The higher the level of its revenues the more probable it is that a business is being carried on. If the corporation does not qualify under s. 149(1)(j), this could result in disqualifying the non-profit organization which holds the shares from exemption under s. 149(1)(l).

Paragraph 149(1)(k) - Labour organizations


O'Brien v. The Queen, 85 DTC 5202, [1985] 1 CTC 285 (FCTD)

It was not seriously disputed by the Crown that five unions who ran a newspaper business were not subject to tax on the profits generated.

Administrative Policy

5 February 1996 External T.I. 5-953282 -

"A labour organization is generally an association of workers of the same trade, or of several allied trades, organized for the purpose of securing the most favourable conditions, wages, or hours of work for its members." An organization that has as its mandate the furtherance of interests of employers only would not be considered to be a labour organization.

28 December 1995 T.I. 952934 (C.T.O. "Union Owning Shares")

The acquisition by a union of 50% of the shares of a corporation owning and carrying on a business would not, by itself, result in loss of the union's exempt status under s. 149(1)(k).

91 C.R. - Q.44

RC cannot comment on the general application of the reasoning in the O'Brien case.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 3 strike pay 19

Paragraph 149(1)(l) - Non-profit organizations


MNR v. Lakeview Golf Club Ltd., 52 DTC 1164 (Ex Ct)

A share corporation that operated a golf course did not qualify for exemption given that it was profitable for the years in question, its bylaws did not contain any suggestion that the company was organized for non-profitable purposes and, instead, provided that dividends, when earned and declared, "shall" be paid to the shareholders, and the retained earnings of the company resulted in a benefit to the shareholders because such retention of earnings increased the value of their shares.

Gull Bay Development Corp. v. The Queen, 84 DTC 6040, [1984] CTC 159 (FCTD)

It was found that a corporation without share capital had been set up to improve living and social conditions on an Indian reserve, and thereby qualified as a non-profit organization under s. 149(1)(l) and as a charitable organization under the predecessor of s. 149.1(1)(b). It was stated "that the corporation was not set up, as its Letters Patent indicate, to carry on a commercial activity although it is no doubt true that the motive for forming the corporation may have been that it was desirable to provide employment and training to otherwise unemployed Indians on the Reserve by engaging in a commercial activity [i.e., a viable commercial logging operation] which would not only provide such employment but raise funds to be used for the very worthy social and charitable activities required on the Reserve".

Woodward's Pension Society v. The Minister of National Revenue, 62 DTC 1002, [1962] CTC 11, [1962] S.C.R. 224

The taxpayer, which was incorporated under the Societies Act of British Columbia, was organized in order to provide funds for the payment of pensions to employees and ex-employees of Woodward Stores Limited and to pay over its surplus funds to the trustees of a pension fund for those employees and ex-employees. Its by-laws provided that on dissolution all its assets should be conveyed to the trustees. The taxpayer operated a share sale plan for the employees, by purchasing blocks of shares in the various Woodward stores at par and reselling them at par to employees. The taxpayer earned profits attributable to the difference between interest at 3% payable by it on the unpaid balance of subscriptions by it for Woodward shares, and interest at 4% charged by it to employees on the unpaid balances of their subscription prices, and attributable to other dealings in shares.

In finding that the taxpayer was not exempt under s. 62(1)(i) of the pre-1972 Act, Judson J. noted (p. 1004) that its purpose of assisting the provision of funds for employee pensions "could not be achieved without the share sale plan which was designed to make a profit to enable the payments to be made to the pension trustees".

Minister of National Revenue v. St. Catharines Flying Training School Ltd., 55 DTC 1145, [1955] CTC 185, [1955] S.C.R. 738

The taxpayer was incorporated under Part I of the Dominion Companies Act for the purpose of operating a flying school for the training of members of the RCAF and was restricted in its letters patent from distributing any dividends during the Second World War hostilities. It was intended by the incorporators (as stipulated in a declaration of trust for their shares) that any surplus from the taxpayer's operations would enure to the benefit of the St. Catharines Flying Club, a non-profit organization.

Profits earned by the taxpayer under a training contract with the Crown which did not place any restrictions on the use of profits therefrom were fully taxable. "The question of the liability of the respondent to taxation depends, not upon the intention of the promoters or shareholders as to the disposition to be made of the profits but rather upon consideration of the terms of the letters patent, the nature of the business authorized to be carried on and of the business which was carried on which resulted in the earning of the income."

See Also

Coop publicitaire des concessionnaires Chrysler Jeep Dodge du Québec c. Agence du revenu du Québec, 2016 QCCQ 11252

marketing-promotion corporation was exempt

The appellant (“Coop”) was incorporated under the Quebec Cooperatives Act for the stated purpose of “carrying on a business with a view to providing promotional and publicity services to its members so as to promote vehicle sales.” The funding of each member dealership was set by the Coop board at a stipulated dollar amount for each Daimler-Chrysler vehicle sold. The articles prohibited the funding from being used for anything other than the stipulated promotional purposes and, in particular, from being distributed to the members. When the ARQ denied Coop’s deduction of losses of a dissolved predecessor entity, Coop advanced the position for the first time that it was exempt under the Taxation Act as being a club or association described in TA ss. 986 and 996 (similar to ITA s. 149(1)(l).)

After discussing and quoting BBM at length, Lareau JCQ stated (at paras. 30-32, TaxInterpretations translation):

Coop’s situation is not dissimilar to that of BBM regarding its mode of operation. Coop also functions based on an estimated budget. It operates without profit given that it does not contemplate recovering its costs and administrative expenses. The surpluses which it might have at year end go exclusively to finance its activities at the start of the following year. No cash amount can be distributed to its members as profits or rebates.

As in BBM, Coop did not realize profits in accomplishing its objects, as it functioned on a cost recovery basis. …

Nothing in this case justifies a different decision [than in BBM].

BBM Canada (formerly BBM Bureau of Measurement) v. The Queen, 2008 DTC 4129, 2008 TCC 341

data measurement performed on cost-recovery basis for business benefit of members qualified

A non-share federal corporation that undertook audience measurement activities for the benefit of its members (commercial TV and radio stations) qualified as a not-for-profit organization. Boyle J. stated (at paras. 49-50):

If its reserves are reasonable and it operates on a cost recovery basis, it would be hard to say an organization realizes significant profits.

BBM only sells its data to its members. It would be difficult to impute a profit purpose to an organization that only sells to members on a cost recovery basis.

He rejected a submission of the Crown (at para. 28) "that 'for any other purpose except profit' means unrelated to any commercial or business activity" and stated (at para. 54) that "a public benefit or purpose is not a pre-requisite to qualifying for the paragraph 149(1)(l) exemption".

Words and Phrases

Canadian Bar Insurance Association v. The Queen, 99 DTC 653 (TCC)

The taxpayer, whose letters patent stated that "in no event shall the purposes of the organization and/or operation of the Corporation include profit" sponsored (but did not underwrite) national insurance programs for lawyers and negotiated with insurance companies with respect to particular products in the insurance programs and their cost. For the initial taxation years in question, the taxpayer had three basic sources of annual revenue: a 5% administration fee retained by it from premiums it collected on behalf of the insurers; amounts remitted to it by the insurance companies (in years where claims were low) pursuant to a retention agreement for the purpose of funding a stabilization reserve (i.e., for the purpose of producing more stable premiums over time); and investment income earned on the stabilization reserves. The basic program was altered somewhat in the later taxation years.

In finding that even though there was "no doubt that the Appellant engages in a high level of commercial activity" (p. 661), e.g., invoicing and collecting premiums, negotiating lower commission rates and entering into complicated retention agreements, and even though the taxpayer earned substantial profits in some years under the above arrangements, its preponderant purpose was to facilitate the availability of insurance products at cost to the legal community in Canada; and the large reserve did not reflect a profit purpose but, rather, a purpose of providing service to members. Accordingly, the taxpayer was not only not organized for profit, but also was not operated for profit.

Otineka Development Corp. Ltd. v. The Queen, 94 DTC 1234 (TCC)

Two corporations owned by an Indian band that owned and operated a shopping mall and a building supply business had as their sole raison d'être the owning and running of the businesses for profit, notwithstanding that the profits, when distributed to the band, might ultimately be used for the social or civic welfare of the band. Furthermore, the income was available for the benefit of the corporations' shareholder (the band) because excess cash not needed for operations or repairs was loaned to the band and, in most cases, then written off. Accordingly, the exemption was not available.

L.I.U.N.A. Local 527 Members' Training Trust Fund v. The Queen, 92 DTC 2365 (TCC)

A fund established by the Labours International Union of North America, Local 527 and the Ottawa Construction Association (an employers' association) (the "OCA") in order to train union members and which was funded with a grant of $45,000 from the union's existing training and recreation fund, by government grants and by contributions by members of the OCA at a fixed rate per employee hour worked would have been found not to be a person (and therefore not to have standing) given that it was a non-charitable purpose trust, but for section 16 of the Perpetuities Act, which deemed the fund to be a valid trust.

The fund was an "association" (i.e., "a relationship between two or more persons for a common purpose") between the union and the OCA. The substantial accumulation of short-term investments by the fund in treasury bills and term deposits was explained by its inadequate facilities, by its inability to find adequate personnel to do training during the relevant periods, and by the high interest rates prevailing in those years. With respect to the opinion of the Minister, he could not use his failure to form an opinion as to whether the fund was a charity as a basis for denying the fund's claim.

Accordingly, the fund's exempt status was upheld.

Words and Phrases

C. & E. Commrs v. Bell Concord Educational Trust Ltd., [1989] BTC 5061 (C.A.)

An incorporated college which, in fixing the student fees, budgeted for a substantial surplus of revenues over expenditure to be applied in maintaining and improving the school's facilities, was providing education "otherwise than for profit" because the surplus could never redound for the profit of any member but must instead be applied for the charitable purposes of the company.

Re Ogdensbury Bridge and Port Authority (1989), 56 DLR (4th) 56 (Ont HC)

A public benefit corporation which was incorporated in New York to build and operate an international bridge to Canada was not exempt from business assessment since it was permitted to make a profit and in most years it made a small profit sufficient to pay a small subsidy to other operations.

Re Kitchener-Waterloo Real Estate Board (1986), 56 OR (2d) 94 (HCJ)

The predominant activity of the Kitchener-Waterloo Real Estate Board, which was a non-share corporation that was prohibited from distributing profits to its members, was the operation of a multiple-listing service. Since the predominant purpose of the Board was to facilitate the generation of profits by its members, its activities were a business. There was no need for the profits generated by the Board to be the Board's profits. (Assessment Act (Ont.), s. 7(1)).

Regional Assessment Commisioner v. Caisse Populaire de Hearst, [1983] 1 S.C.R. 57, 143 DLR (3d) 590

The predominant purpose of a credit union was to provide loans to its members for provident and productive purposes at low cost and not to make a profit. It accordingly did not occupy its premises in connection with a "business" (s.7(1), Assessment Act (Ont)).

Administrative Policy

2016 Ruling 2015-0593841R3 - Sale of XXXXXXXXXX Club

CRA rules on the payment of a substantial capital dividend by a s. 149(1)(l) incorporated golf club

A Club has both Class A and Class B shares, which are entitled to receive dividends, outstanding, as well as common shares. However, the Club’s letters patent restrict the Club’s ability to pay dividends, so that no part of the income, as determined under s. 149(2), of the Club may be made payable to any shareholder. The Club previously acquired XX acres of land, which is used in providing recreational facilities for the enjoyment of members.

Proposed transactions

The Club will sell its land and building (the “Property”) to an arm’s length third party, and then lease part of the Property back from the purchaser and continue to operate the club in its present location for a period of a number of years. The Club will report a resulting taxable capital gain relating to the portion of the Property that was not used exclusively for and directly in the course of providing the dining, recreation and sporting facilities for its members. The Club will declare and make payable a series of capital dividends pursuant to s. 83(2) to the holders of the outstanding Class A and Class B shares in equal amounts per share. The members of the Club will evaluate potential relocation of the Club.


To disburse proceeds, from capital gains realized on the above sale and a previous sale, that are in excess of future operating and capital requirements of the Club, including the potential acquisition of a new property for the Club.


The disposal of the Property or the distribution of the capital gain will not, by itself, cause the Club to cease to be as described in s. 149(1)(l). There will be added to the Club’s capital dividend account the amount by which the capital gain on the disposition of the Property exceeds the taxable capital gain resulting from the sale of the Property notwithstanding that a portion of the taxable capital gain will be exempt from income tax by virtue of s. 149(5)(e)(ii).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(5) no effect of s. 149(5)(e)(ii) on CDA amount 143

6 August 2015 External T.I. 2015-0565651E5 F - Reliquat dévolu à une administration municipale

personal benefit rule applies to liquidation right of municipal member

Would an organization otherwise qualifying under s. 149(1)(l) lose its exempt status because of a clause in its articles providing that in the event of it winding-up, dissolution, or merger, all property must be transferred to a municipal authority within the meaning of paragraph 149(1)(c)? CRA responded:

Where a municipal authority is a member of an entity referred to in paragraph 149(1)(l), the latter would lose its tax-exempt status by reason of the clause in its enabling documents that provided that in the event of a winding-up, merger or dissolution, all its assets and accumulated income must be transferred to the municipal authority as described in paragraph 149(1)(c). There would be loss of entitlement to the exemption under paragraph 149(1)(l) since the condition, that no part of the income can be payable to, or otherwise made available for, the personal benefit of any member of the association, would not be satisfied.

However, the member-benefit rule would not be breached if the municipal authority was not a member.

29 April 2015 External T.I. 2014-0532691E5 F - Vente – immeuble - syndicat copropriétaire

a syndicate of condominium co-owners could qualify as a s. 149(1)(l) corporation, so that a capital gain realized by it on a condo sale would be exempt

A syndicate of co-owners holding condominium units sold one of the condominiums at a capital gain. Would this cause it to lose its status under s. 149(1)(l), what would be the treatment to it of the capital gain and what would be the consequences to the beneficiaries of a distribution to them of the gain?

After noting that in light of its separate legal personality under s. 1039 of the Civil Code, the syndicate was a corporation, and that such corporation could satisfy the not-for-profit tests of s. 1`49(1)(l), CRA noted that, in light of s. 149(2), distribution of the capital gain would not be contrary to s. 149(1)(l) (although it would give rise to a taxable s. 15(1) benefit to the members to whom the gain was distributed) and that no Part I tax would be payable by the corporation on the gain (provided that s. 149(5) did not apply).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Corporation community of condominium owners is treated by the Civil Code as a legal person, and is a corporation 117
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) distribution of gain to members of a condominium syndicate gave rise to a shareholder benefit 75

4 March 2015 External T.I. 2014-0537941E5 - Non-Profit Organization – fibre-optic cable

substantial fibre-optic cable network likely not consistent

The Institute, a not-for-profit organization, received a provincial grant and subsequently accessed provincial debentures to finance the construction of a substantial fibre-optic cable network. It will charge an access fee to commercial enterprises using the network and the cash flow generated will initially service the debt and subsequently will support community enhancement projects within the Institute's mission. CRA stated:

[T]he revenue generated from the fibre-optic cable network could affect the tax-exempt status of the Institute since it does not appear that this revenue is incidental or arises from activities directly connected to its not-for-profit objectives, which are to support the building of community capacity and the sustainability and growth of its business community.

11 September 2014 External T.I. 2014-0540031E5 - Community Contribution Company (C3)

non-NPO status of community contribution company

The B.C. Business Corporations Act now allows for a "community contribution company" to do business and generate profits in the normal course of its commercial activities, while at the same time capping the dividends that can be paid out to shareholders. This structure provides a (limited) return to the investor, while providing social enterprise benefits to the community. Does such a company whose incorporating documents stipulate that 100% of its profits must be donated to a local charity which assists children and families qualify under s. 149(1)(l)? CRA stated:

[C]ommunity contribution companies are organized and operated to make a profit with which to provide both a return to investors and community benefits. … . Even though all or substantially all of the profits of this particular community contribution company are destined for a good cause…it will nevertheless be organized (and operated) for profit and, as such, would not qualify… .

26 August 2014 External T.I. 2014-0528701E5 - Non-profit organization - Condominium

commercial condo corp

A commercial condominium corporation manages the property and assets of a commercial building consisting of units that are individually owned by various businesses, and collects monthly contributions to cover common expenses and to fund a replacement reserve. Does it qualify under s. 149(1)(l)? In the course of a general non-committal response, CRA stated:

Some characteristics that might indicate that an activity is a trade or business are as follows:

(a) it is a trade or business in the ordinary meaning, that is, it is operated in a normal commercial manner;

(b) its goods or services are not restricted to members and their guests;

(c) it is operated on a profit basis rather than a cost recovery basis; or

(d) it is operated in competition with taxable entities carrying on the same trade or business.

Generally, the carrying on of a trade or business directly attributable to, or connected with, pursuing the non-profit goals and activities of an association will not cause it to be considered to be operated for profit purposes.

30 May 2014 External T.I. 2014-0518841E5 - 149(1)(l) - Fundraising

fundraising activities too substantial

In response to a query on a fundraising event whose description CRA did not repeat, it stated:

Limited fundraising activities involving games of chance (e.g., lotteries, draws), or sales of donated or inexpensive goods (e.g., bake sales or plant sales, chocolate bar sales), generally do not indicate that the organization as a whole is operating for a profit purpose. However, the scope of the fundraising activities, especially by comparison with other activities, should not be so significant that fundraising can be considered a purpose of the organization, in which case the organization may not qualify as a 149(1)(l) entity.

It does not appear…that your event would meet the conditions in paragraph 149(1)(l)… as the event is not organized as a club, society or association and the scope of the fundraising activities in relation to other activities seems substantial.

18 August 2014 External T.I. 2014-0528171E5 - Condominium Corporations and 149(1)(l)

condominium solar revenue treated as members' income

A condominium corporation (the "Corporation") enters into a leasing agreement with a solar company, which would lease several roofs within the complex for the use of solar panels, with the output sold to the public electrical grid. The solar company would assume all costs of the arrangement, and the Corporation would receive annual income of approximately $XX or a percentage of the revenues generated, which would be contributed to the Corporation's reserve fund thus potentially offsetting or freezing any annual reserve fund increase, and/or reducing annual reserve fund contributions and/or reducing property owner's monthly maintenance fees. Would this jeopardize its s. 149(1)(l) exemption? CRA stated:

[I]ncidental income from the rental of common areas may be treated as income of the Corporation and generally will not affect [its] tax-exempt status… . Incidental, in this context, means both minor and directly related to activities undertaken to meet the Corporation's not-for-profit objectives of managing and maintaining the condominium property and required reserves. …

Income that is not incidental will usually be considered to be income of the unit owners, if this is appropriate under the relevant provincial law. Subsection 11(2) of the Condominium Act of Ontario (S.O. 1998, c.19) provides that "the owners are tenants in common of the common elements…". …

Where the relevant provincial law indicates that the income is the income of the Corporation, then we would agree that the Corporation may not be tax-exempt pursuant to paragraph 149(1)(l)… .

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Exempt Receipts/Business condominium solar revenue treated as members' income 231

Non-Profit Organization Risk Identification Project Report 17 February 2014

Purpose of Project

[T]he Non-Profit Organization Risk Identification Project (NPORIP)…, which the CRA started in 2009…was designed to provide the CRA with insight into the way organizations claiming the exemption under paragraph 149(1)(l)… .

Any profit must be incidental

[T]he NPORIP…observed that many in the non-profit sector believe that NPOs must produce a profit for their programs to thrive and for their capital assets to be maintained. In particular, there is a common view that, as long as profits are used to further the organization's purpose, the source of the funding shouldn't matter. However, it is the CRA's position that a NPO can earn profits, but the profits should be incidental and arise from activities that are undertaken to meet the organization's non-profit objectives. The earning of profit cannot be or become a purpose of the organization, even if the profit is earned to fund non-profit objectives. …

A significant number of NPOs violate the incidental profit test or have large equity

The results from the review of the randomly-selected organizations suggest that a significant portion of incorporated organizations would fail to meet at least one of the requirements set out in paragraph 149(1)(l)… . Of these:

  • A significant portion would fall into a higher category of risk, which includes organizations earning profits that were not incidental or not related to their non-profit objectives; organizations with disproportionately large reserves, surpluses, or retained earnings; and organizations where income is payable or made available for the personal benefit of a proprietor, member, or shareholder. Many of the organizations that fall within this higher-risk category would not actually qualify for the tax exemption under paragraph 149(1)(l)… and would need to be reassessed if they were audited outside the purview of the NPORIP… .
No immediate assessment activity

[CRA] will work with representatives of the non-profit sector to determine how the sector's knowledge of the income tax rules can be improved

23 September 2013 Internal T.I. 2012-0471531I7 F - Non-profit organization

taxable member of an NPO can make loans at interest to it and receive repayment of the loan on the NPO’s winding-up

A taxable Canadian corporation was the member of a non-profit organization and its sole creditor and principal benefactor. The NPO was wound up and all its assets transferred to the member in partial satisfaction of the debt owing by it to the member, but with the whole of the debt being agreed to be settled. The fair market value of the assets distributed on the winding-up differed from CRA’s estimate of their value.

In finding that this distribution would not by itself cause the NPO to lose its status under s. 149(1)(l), CRA stated:

The repayment of the debts of XXXXXXXXXX, as part of its winding-up, is therefore effectively provided for under the applicable legislation.

We therefore agree with your position that "XXXXXXXXXX does not lose its status as an exempt organization when transferring its assets to XXXXXXXXXX because, in doing so, it does not transfer 'the remainder of its property' to another corporation that does not carry out similar activities, but is instead paying its debts (which is in accordance with corporate laws and its articles of incorporation)." …

[A] member of a non-profit organization can make a loan to a NPO without jeopardizing the status of the NPO, even if the member, as a creditor, receives interest on its debt to the extent that the interest rate on its claim is reasonable. In this regard, we refer you to document 2000-004745.

It appears to us, therefore, that in general, despite the fact that a creditor of an organization exempted under paragraph 149(1)(l) is also a member of the organization and that property is distributed to it in settlement of debts, this should not cause the corporation to lose its NPO status, as long as the financing granted to the NPO is legitimate and is not a stratagem to recover the assets at the time of the liquidation of the NPO.

12 August 2013 External T.I. 2012-0468581E5 - Condo corp sale or rental of caretaker suite

A condominium corporation would probably retain its s. 149(1)(l) exemption if it were to sell a caretaker suite at fair market value and put the proceeds of disposition in its reserve fund for future repairs and improvements.

Because a rental at fair market value is a profit-generating activity, renting the caretaker suite would probably deprive the corporation of its s. 149(1)(l) exemption.

The conversion of the caretaker suite to a guest suite (rentable to tenants for their guests) may deprive the corporation of its s. 149(1)(l) exemption if it charges market prices - but charging below market prices may confer a taxable shareholder benefit on its members (i.e. tenants) pursuant to s. 15(1) and the s. 248(1) definition of "shareholder."

Converting the suite to a fitness centre will deprive the corporation of its s. 149(1)(l) exemption if the centre is operated for profit.

2 August 2013 External T.I. 2013-0475041E5 - NPO - rental income

An NPO intended to rent vacation properties to non-members without giving up its s. 149(1)(l) exemption. CRA indicated that such activities would likely not bring the NPO out of s. 149(1)(l), provided that:

...the rental income was incidental, the rental of the property to non-members was infrequent or for a short period of time during a transition period (e.g. for a period during which the property was being prepared for sale), any incidental income earned from the rental of the property was used for the organization's not-for-profit objectives, and the incidental income earned was not made available for the personal benefit of the organization's members.

Such rental income would be subject to tax under s. 149(5), assuming it were property income (as would probably be the case). If it were business income, the NPO would probably lose its s. 149(1)(l) status, as business income intrinsically indicates a for-profit purpose.

2 July 2013 External T.I. 2012-0454251E5 - 149(1)(l) – donations to capital fund

Generally, an organization referred to under s. 149(1)(l) will not lose its s. 149(1)(l) exemption for collecting donations from members or from businesses affiliated with its members for use in a capital project that furthers the organization's non-profit purposes, nor will it lose its exemption for maintaining a "wall of honor," naming rights, or similar systems for recognizing such contributions, providing that such recognition has only nominal value.

CRA stated:

However, amounts received by an organization in exchange for naming rights may be received, either wholly or partially, in relation to advertising or other income (e.g., where the naming rights provide a prospective economic benefit to a business, or if a business is able to deduct from its income the amount as an advertising or other expense). If such income received by the organization is not incidental, the organization may be considered to have a profit purpose and may be considered to have made income available for the personal benefit of its members, particularly when the amounts are received from non-members.


An organization's accounting records should clearly identify the capital funds accumulated for the capital project and all transactions concerning the capital project. In addition, since the Sports Club's main purpose appears to be providing sporting and recreational facilities to its members, any property income earned from the investment of the funds that are accumulated for the capital project will be subject to tax under subsection 149(5).

21 November 2012 Internal T.I. 2012-055501I7 -

The Corporation was a non-share corporation with only one member (the "Parent"). The Corporation, which had substantial retained earnings, was invested in shares of a for-profit corporation ("Subco") along with a non-exempt third party. But for the payment of substantial management fees to Parent, the Corporation would have generated profits.

The Corporation was ineligible for the s. 149(1)(l) exemption. The management fees, which likely were "unreasonable in comparison to any actual work done," had the effect of making income of the Corporation available to its member. (CRA implied that the Parent's management fees should have been on a cost-recovery basis only.)

The Corporation's substantial retained earnings and its investment in Subco (indicating that it had "excess funds available to invest in a taxable corporation") also indicated a for-profit purpose.

20 November 2012 Internal T.I. 2012-0439951I7 - NPO Project

CRA indicated that the NPO in question would probably not qualify for s. 149(1)(l) exemption:

In our view, the fact that the Association has sufficient funds available to purchase and finance a taxable organization, whether the objects of that organization are connected to the objects of the Association or not, suggests that the Association has not been organized and operated for a purpose other than profit and thus does not meet the requirements of paragraph 149(1)(l) of the Act. Further, in our view, the amount of reserves and annual excess of revenues over expenditures, also support that the Association does not meet those requirements.

16 October 2012 External T.I. 2012-0448531E5 - XXXXXXXXXX update on NPO audit project

CRA previously sent "education letters" to organizations claiming s. 149(1)(l) exemption in order to remind them of the criteria of that provision. CRA's decision to discontinue these letters due to concerns expressed by some of those organizations does not indicate an intention to change how s. 149(1)(l) is applied. IT-496R continues to represent CRA's position on s. 149(1)(l).

28 September 2012 External T.I. 2011-0429141E5 - NPO - Loan to Taxable Subsidiary

Before concluding that a non-profit organization which make loans to a taxable subsidiary would "likely not" qualify for the exemption, CRA stated:

the fact that a 149(1)(l) organization has funds available to provide loans to its taxable subsidiaries generally suggests that the organization has retained earnings larger than is necessary to meet the organization's not-for-profit objectives and is therefore not operating exclusively for a purpose other than profit. As a result of large reserves, a 149(1)(l) organization may also be earning large amounts of tax-free investment income on funds that are not necessary to meet its not-for-profit objectives.

27 September 2012 External T.I. 2011-0412961E5 - NPO and Taxable Subsidiary

CRA noted that holding shares in a for-profit subsidiary will not necessarily disqualify an organization from the benefit of 149(1)(l).

...if an organization holds shares to earn income from property, it may be considered to have a profit purpose, even if the income from those shares is used in furtherance of the organization's not-for-profit objectives. However, the CRA has accepted that where an organization that otherwise qualifies for the exemption under paragraph 149(1)(l) engages in an income-generating activity that is carried out in a taxable, wholly-owned corporation, and this corporation pays dividends out of its after-tax profits to the organization to enable the organization to carry out its not-for-profit activities, the organization may still qualify for the exemption as set out in paragraph 149(1)(l).

When asked "if, instead of a taxable subsidiary corporation, a trust fund was established to carry out the for-profit activities," CRA stated that it would need "to fully review all of the facts and relevant agreements."

20 June 2012 Internal T.I. 2011-0426231I7 -

CRA found that an organization likely did not qualify as a non-profit organization given that the size of its operating reserves, and the rate at which the reserves were accumulating, outstripped any reasonable need the organization had to cover its operating expenses. CRA stated:

An organization should fund capital projects and establish (reasonable) operating reserves from capital contributed by members, from gifts and grants, or from accumulated, incidental profits.

CRA also noted that the Woodward's decision stands for the proposition that:

[I]f the objectives of the organization cannot be achieved without the making of a profit, then the organization must be organized and operated for the purpose of profit.

23 May 2012 External T.I. 2011-0418691E5 - 149(1)(l) - Lease or Sale of Lockers to Members

The lease or sale of lockers to members will generally not jeopardize an organization's eligibility under s. 149(1)(l), provided that doing so is incidental to the organization's activities and that the profits therefrom are used to fund the organization's activities (see IT-83R3). A condominium organization may rent out storage lockers to its members, for example.

30 March 2012 Internal T.I. 2011-0408851I7 - XXXXXXXXXX and 149(1)(l)

CRA indicated that it is reasonable under s. 149(1)(l) for a non-profit organization to invest funds before it is required to distribute them (in this case, between the time that Members earn commissions and the time that they are periodically distributed) and not be found to have an income-earning purpose. However, CRA stated:

If the XXXXXXXXXX has a reserve, or is building up a reserve, for investing purposes, either by delaying payments [to Members] (amounts not paid as soon as reasonably possible) or by charging more than necessary in commissions, this could indicate that the XXXXXXXXXX is operating for a profit purpose.

12 March 2012 Internal T.I. 2012-0404671I7 -

CRA indicated that a corporation's large retained earnings probably disqualified the corporation from the s. 149(1)(l) exemption:

Based on the facts provided, there is little or nothing to distinguish the Corporation from a for-profit XXXXXXXXXX business, and we understand that it competes directly in this market. The regular and consistent increase in retained earnings supports the view that the Corporation has operated for a profit purpose. The net income, while not large in comparison to gross revenues, has been consistently accumulated and used to expand the business of the Corporation or to acquire investments. The fact that all of the income of the Corporation is derived from third parties is of particular concern in this regard. The objective of maximizing revenues in order to pay higher salaries and bonuses to member-employees indicates a profit purpose. Finally, we share your concern that at least some part of the reserves have been accumulated for the purpose of generating investment income.

29 March 2012 External T.I. 2010-0391311E5 F - OBNL, exploitation d'une entreprise

Timmins expansive concept of "business" applied

CRA quoted from Timmmins, and indicated that an organization whose overall objective is not to earn profit may nonetheless be considered to be carrying on a business if it carries on activities regularly over a period of time, with the result that it would not be considered to be operated exclusively for non-profit purposes.

28 March 2012 External T.I. 2011-0395201E5 - IT-496R

Where IT-496R, para. 12 indicates that payments may be made to delegates to cover expenses of attending conventions and meetings, "delegates" "generally means a person sent or authorized to represent others," so that it is possible that an individual will be a delegate even where the individual has not authority to vote.

Furthermore, "an activity undertaken by a member primarily for the benefit of the organization generally will not be considered to result in a personal benefit to the member...."

20 February 2012 Internal T.I. 2011-0429471I7 F - OBNL et profits accessoires

food and beverage sales at a the NPO’s annual hosting of festival conformed with operating for non-profit purpose
2011-0429461I7 F is quite similar except that it has an additional paragraph (the penultimate paragraph) on the need for not-for-profit objects.

Consistently with its not-for-profit objects, Corporation hosts, organizes and promotes an annual out-doors festival event. Although it receives most of its revenues as government grants, it also derives a small portion of its revenues from the sale through outdoor kiosks at the festivals of products such as food, beer and wine. Are these consistent with the s. 149(1)(l) requirement of being operated exclusively for non-profit purposes?

In responding favourably, CRA stated:

[T]he retail sale of consumer products is part of the establishment of appropriate facilities for the holding of the festival event that Corporation is mandated to host, organize and promote. Consequently, we are of the view that that is an activity that is, in itself, undertaken to achieve the Corporation’s non-profit purposes.

CRA went on to clarify that it disagreed with the argument of Corporation’s representatives that, “in order to determine the non-profit nature of an organization, the study of its purposes and intent takes precedence over the study of its ad hoc activities,” and referenced inter alia in this regard the statement in the CBIA case (99 DTC 653) that "[w]hen determining purpose or object or motive, the conduct of a corporation is more important than a declared object in its charter.”

20 February 2012 Internal T.I. 2011-0429461I7 F - OBNL et profits accessoires

articles of NPO should have prohibition on profit-seeking by it and any successor
This is essentially the same as 2011-0429471I7 F, except for the addition of the penultimate paragraph (re not-for-profit objects).

CRA indicated that the generation of profits from retail sales of consumer products such as food, beer and wine during shows and outside activities in the course of an annual festival organized and promoted by an organization, with such profits being minimal when compared with its total revenues (mostly government grants and sponsorship) would not cause it to lose its status as a non-profit organization. CRA went on to state:

[I]t appears that the objects of Corporation are written quite broadly, so that the Corporation may seek to generate profits without contravening its articles of incorporation. ... [W]e note that in the CBIA case ... the following was stated in the organization's articles of incorporation: "In no event shall the purposes of organization and/or operation of the Corporation include profit.” (para 1) [and similarly in BBM, para 11]. It may be desirable that the articles of incorporation of Corporation be amended to include a similar clause ... .

CRA went on to note the desirability of providing that any successor on a winding-up should be specified to be subject to the same limitations.

27 November 2011 CTF National Conference CTF Roundtable, 2011-0426111C6 - 2011 CTF Question re NPOs

In the course of answering questions pertaining to CRA's Non-Profit Organization Risk Identification Project, comprising the random auditing over three years of 1440 of the 39,000 entities claiming NPO status and possible legislative recommendations, CRA was asked about the treatment of events connected to an NPO's not-for-profit activities where the event itself generates a profit:

Whether profit is incidental depends on the amount involved and the scope and nature of the activities compared to the operations of the organization as a whole.

The amount of the profit, both in absolute dollars and especially relative to the organization's other revenues and expenses, is relevant.

23 June 2011 External T.I. 2011-0397881E5 - 149(1)(l) Entity - Use of Land by Shareholders

In the case of a corporation to which s. 149(1)(l) applied (non-profit corporation for recreation or pleasure), use by a shareholder of corporate property, for less than fair market value of the use, might be a taxable benefit under s. 15(1). If so, then the value of the benefit is the difference between such fair market value and the consideration paid by the shareholder.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) conferral on NPO member 63

28 November 2010 CTF Roundtable, 2010-0386301C6 - NPO Carrying on Business for Profit

In response to a general inquiry as to when an NPO is carrying on a business, CRA stated:

Paragraph 7 of Interpretation Bulletin IT-496R (note 3) provides a list of characteristics that the CRA will consider in making this determination. The court in BBM agreed that these were reasonable considerations for the purposes of applying the tax exemption. The characteristics considered include whether

  • there is a trade or business in the ordinary sense,
  • goods or services are restricted to members and their guests,
  • the business is operated on a profit basis rather than a cost-recovery basis, and
  • the business is operated in competition with taxable entities carrying on the same trade or business.

21 November 2001 External T.I. 2001-009528 -

the exemption in s. 149(1)(l) is equally available to a non-resident NPO. If the corporation qualifies as an NPO under s. 149(1)(l), it also will be exempt from branch tax under s. 219(2).

The practical guidelines in IT-496 essentially are "no more than a notice to the public that if too much income is earned or if large surpluses are accumulated the Minister will draw an inference of fact that the fund is being operated for profit."

2 July 1998 T.I. 980455

Damages received by a teminated employee that could be attributed to aggravated and punitive damages relating to malicious actions, intentional infliction of mental suffering, defamation or injury to reputation, would be exempt as would damages awarded by a Human Rights Tribunal or a settlement in lieu thereof, provided the damages did not relate to the loss of employment but related solely to damages arising from human rights violations by the former employer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) 72

2 August 1995 T.I. 951683 (C.T.O. "NPO - Indian Forestry Corporation")

Comments on whether a non-profit forestry corporation set up by aboriginal persons and described as an aboriginal community development corporation would be tax exempt.

Income Tax Technical News, No. 4, 20 February 1995

Most residential condominium corporations will qualify as non-profit organizations because they are normally operated "for any other purpose except profit".

25 July 1994 External T.I. 5-941379 -

With reference to a testamentary trust established for the purpose of providing funds for the care and treatment of domestic animals in a specified area, RC indicated that it was its view "that trusts that are set up, not to benefit specified persons, but to ensure that particular purposes are carried out, i.e., purpose trusts, could qualify as non-profit organizations provided, among other factors, they spend their funds on furthering the non-profit purposes for which they were formed".

21 July 1994 T.I. 941422 (C.T.O. "Non-Profit Organization")

A company that carries on a dockside monitoring program on fish landings potentially could qualify.

10 July 1994 External T.I. 5-941497 -

"Generally, the Department is of the view that an organization is not operated exclusively for non-profit purposes, when its principal activity is the carrying on of a trade or business. Some characteristics of an activity that might be indicative of a trade or business are as follows:

  • it is a trade or business in the ordinary meaning, that is, it is operated in a normal commercial manner;
  • its goods or services are not restricted to members;
  • it is operated on a profit basis rather than a cost recovery basis; or
  • it is operated in competition with taxable entities carrying on the same trade or business."

27 June 1994 External T.I. 5-940814 -

"Employee training trust funds are similar to purpose trust and provided, among other factors, they spend their funds on furthering the non-profit purposes for which they were formed, it is likely they could qualify as non-profit organizations."

A direction in the trust deed that surplus money and assets of the trust must be distributed to the employer and other contributors in the event of the wind-up of the trust, could disqualify the trust to the extent that such property might include income of the trust.

23 March 1994 T.I. 933525 (C.T.O. "Non-Profit Organizations")

Re Whether a subsidiary of a labour union which has purchased a building for rental to the union will qualify for exemption under s. 149(1)(l).

26 August 1992 T.I. 921469 (April 1993 Access Letter, p. 150, ¶C144-207)

The provision of goods and services to persons other than members and their guests may be characteristic of a profit motive.

Where a special project requires the accumulation of funds over a number of years, monies received as capital should be deposited in one account and monies earned on it should be accumulated in the other. Funds to carry out the project should first be taken from the revenue account.

9 March 1992 T.I. (Tax Window, No. 17, p. 23, ¶1790)

A non-profit organization that acquires office space in excess of its current needs (but not in excess of what it might be expected to need in the foreseeable future), will not jeopardize its status by earning rental income from that space.

14 February 1992 T.I. (Tax Window, No. 16, p. 22, ¶1749)

An organization may qualify as a non-profit organization if it receives dividends from a wholly-owned taxable corporation which carries on an income-producing activity related to the organization's purpose.

23 October 1991 T.I. (Tax Window, No. 11, p. 12, ¶1533)

Where the facilities of an organization are available to non-members and used by them to a significant degree with the result that (a) activities carried on for the members are subsidized by the profits earned from non-members because the fees or assessments charged to the members are well below cost, or (b) profits from non-members are used to acquire or maintain facilities for which the charge to members is significantly below cost, the income of the organization will be considered to be payable to or for the benefit of the members.

6 September 1991 T.I. (Tax Window, No. 9, p. 21, ¶1448)

Where a non-profit community organization arranged to have a charity issue official receipts to members of the non-profit organization in respect of donations made by the organization to the charity, this would indicate that income of the organization was being made available for the personal benefit of the members, with the result that the organization ceased to qualify for the exemption under s. 149(1)(l).

17 July 1991 T.I. (Tax Window, No. 6, p. 14, ¶1358)

Where an organization accumulates profits rather than using them to achieve its non-profit objectives, it may lose its NPO status.

15 November 1990 Memorandum (Tax Window, Prelim. No. 2, p. 15, ¶1079)

Where funds are paid to or otherwise made available for the personal benefit of any member of a Canadian political party, it will lose its tax-exempt status.

23 February 1990 T.I. (July 1990 Access Letter, ¶1340)

If the letters patent, trust deeds or by-laws of an entity indicate that anything more than a return of capital or taxable capital gains may be made available to members by way of dividend or otherwise, or the entity otherwise has the power in the current or future years to declare and pay dividends out of current or retained income, it will not qualify. If the balance of the accumulated excess is greater than the non-profit organization's reasonable needs to carry on its non-profit activities, RC will consider profit to be one of the purposes for which the organization was operated.

11 January 1990 Memorandum (June 1990 Access Letter, ¶1277)

Where an organization is engaged in operations intended to make a profit, it cannot qualify unless there is a causal relationship between the profit-making activity and the exempt purpose of the organization. The non-profit organization also may carry on a commercial operation which is incidental to the attainment of its non-profit objectives where all the revenues generated by the commercial operation are used to carry on the non-profit activities.

IT-83R3 "Non-Profit Organizations - Taxation of Income from Property"

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(5) 0

IT-496 "Non-Profit Organizations"

IT-409 "Winding-up of a Non-Profit Organization"


Joel Secter, "New Regime for Federal Not-For-Profits is Coming Soon", The Canadian Taxpayer, Vol xxxiii No. 14, 22 July 2011, p. 105: Overview of Canada Not-for-profit Corporations Act.

Knechtel, "Tax Treatment of Non-Profit Organizations", 1989 Conference Report, c. 35

Paragraph 149(1)(n) - Housing companies

Administrative Policy

17 August 2016 Internal T.I. 2016-0639251I7 - Capital Dividend Account and 149(1)(n)

can have a CDA while exempt

CRA considers that one-half of the capital gains generated by a private corporation that is exempt as a low-rental housing corporation under s. 149(1)(n) are added to its capital dividend account and can be paid out as capital dividends.

However, should it lose its exempt status, it also would lose its CDA under s. 89(1.2) – and the timing of the capital gains arising to it under the s. 149(10) disposition of its property would preclude those gains from being added to the available amount of its CDA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1) - Capital Dividend Account - Paragraph (a) exempt low-rental housing corp can use a CDA 110
Tax Topics - Income Tax Act - Section 89 - Subsection 89(1.2) deemed 149(10) gain does not add to CDA before it disapppears under 89(1.2) 155

9 September 1996 Memorandum 962846 (C.T.O. "Limited Dividend Housing Company")

Ninety percent or more of the business of a limited-dividend housing company must be demonstrated to be for the construction, holding or management of low-rental housing projects which lease accommodation to low-income families for the relevant years.

29 July 1992 External T.I. 5-921729 -

The 5% limit is calculated by reference to the invested capital, eg., the paid-up capital.

It is not possible for a corporation which was originally constituted for other purposes to be converted into a limited-dividend housing company.

8 June 1992 T.I. 912877 (December 1992 Access Letter, p. 30, ¶C14-188)

S.2 of the National Housing Act and s. 149(1)(n) are in parri materia, with the result that s. 2 defines what constitutes a "low-rental housing project".

Paragraph 149(1)(o.2) - Idem [Pension corporations]

Subparagraph 149(1)(o.2)(ii)

Administrative Policy

5 March 2014 External T.I. 2013-0490641E5 - Pension Corp-Real Property Development

excess land sale

Less than 20% of a parcel acquired by a s. 149(1)(o.2)(ii) pension corporation (Pensionco) to develop a shopping centre (the "Excess Land") would not be needed for developing the shopping centre. Pensionco would sever the Excess Land, thereby permitting its sale, which would occur before there was any development of the Excess Land. Before "concluding" respecting the test in s. 149(1)(o.2)(ii)(A)(I) that "it would be a question of fact whether the Excess Land has been acquired by Pensionco as capital property," CRA stated:

[A]ctivities undertaken to increase the investment income earned from the real property, e.g., activities to increase rental income, would be acceptable. …[W]e view the development of real property as being synonymous with the improvement of real property. However, development activities that are undertaken for the purpose of increasing the value of the real property for the purpose of selling the property at a profit would not be acceptable.

14 January 2014 External T.I. 2012-0453871E5 F - Pension Real Estate Corporation

ancillary non-real estate investments by an (o.2)(ii) corporation are permitted

Can a corporation qualify under subparagraph 149(1)(o.2)(ii) if it makes non-real estate investments permitted under the pension benefits legislation? CRA stated (TaxInterpretations translation):

Where a corporation invests in investments permitted under the Pension Standards Act referenced in clause 149(1)(o.2)(ii)(B), we are of the view that it is possible, in limited circumstances, that the corporation will have limited its activities to those stipulated in clause 149(1)(o.2)(ii)(A) even if such investments are not real estate investments. This could be the case when a corporation makes a modest ["modique"] and necessary investment in furtherance of the activities described in clause 149(1)(o.2)(ii)(A).

26 June 2002 External T.I. 2002-013488 -

no indirect use doctrine

"The conditions of clause 149(1)(o.2)(ii)(C) would not be satisfied, where borrowed money is used to replace the capital contributed by the shareholders of the corporation. This view also applies where such capital contributions were originally used to invest in real property for the purpose of earning income."

2001 Ruling 2000-009708 -

refinancing of borrowed money

The refinancing of money borrowed for the purpose of earning income from real property will meet the requirements of s. 149(1)(o.2) provided that the original borrowed amount met such requirements.

2001 Ruling 2000-007094 -

real estate partnership

"The acquisition or holding of interests in a limited partnership that invests in real property will not, in and by itself, result in the corporation not satisfying the requirements of 149(1)(o.2)."

Income Tax Technical News, No. 1, 22 July 1994

taxable co-owner permitted

A pension fund realty corporation that acquires or holds an interest in capital property that is real property will not lose its tax-exempt status if a taxable entity is a co-owner.

18 February 1994 T.I. 940241 [taxable co-owner permitted, inventory development prohibited]

taxable co-owner permitted, inventory development prohibited

A pension fund realty corporation may acquire or hold capital property that is real property irrespective whether or not the co-owners are non-qualified persons. If it owns, say, a 50% undivided interest in the real property, it may accept responsibility for 50% of the obligation to maintain, improve, lease or manage the property.

Development activities undertaken with respect to an asset that was acquired with the intent to improve and develop it for sale at a profit are not acceptable.

93 C.R. - Q. 7

taxable co-owner not permitted

Because ownership of an undivided interest in a property gives each co-owner rights in respect of the entire property, if a s. 149(1)(o.2) corporation were to acquire an undivided interest in a rental real estate project where the other co-owner was not exempt, the acquiring corporation would loose its tax-exempt status.

25 November 1992 T.I. 921520 [development of capital property permitted]

development of capital property permitted

A corporation is permitted to develop a capital property as long as such development is associated with the earning of passive investment income on the capital property. Activities undertaken in respect of an asset that has been acquired with the intent of developing it or improving it for sale of the profit are not permissible.

28 August 1992 T.I. (Tax Window, No. 23, p. 18, ¶2164)

None of the entities described in ss.149(1)(o), (o.1) and (o.2) can participate in the active development of properties.

8 April 1992 T.I. (Tax Window, No. 18, p. 20, ¶1860)

The corporation will lose its tax exempt status if it acquires an undivided 1/2 interest in a parcel of land that will be improved and leased to third parties, given that this would not represent the carrying on of the activities permitted by s. 149(1)(o.2)(ii)(A).

11 October 1991 T.I. (Tax Window, No. 11, p. 23, ¶1524)

The exemption in s. 149(1)(o.2)(ii) is applicable only to corporations that maintain a passive role in real estate activities and is not available to corporations in the real estate development business.

June 1990 T.I. (November 1990 Access Letter, ¶1532)

In order for an amalgamated corporation to qualify under s. 149(1)(o.2) as a non-taxable corporation, the amalgamated corporations must have so qualified prior to the amalgamation.


Jack Silverson, Bill Corcoran, "Issues Affecting Investments by Canadian Pension Plans in Private Equity, Infrastructure and Real Estate in Canada, the USA and Europe", 2016 Conference Report (Canadian Tax Foundation),15:1-40

Use of lease structure to address proportionate activity or real estate activity tests (pp. 15:19-23)

Pension plan investments in real estate are not generally made through an investment corporation but rather through a real estate corporation as described in subparagraph 149(1)(o.2)(ii). …

The CRA's position is that the real estate corporation should limit its proportion of activities with respect to the real estate property to its proportion of co-ownership of the property. This might increase the administrative burden with respect to the real estate property in some cases, since both the real estate corporation and the taxable corporation would need to be involved in every lease and other activity related to the property. Pension plans looking to co-invest in real estate property may want to avoid these issues by using a structure…[where] the real estate corporation would hold a co-ownership interest in the real estate property with the third party taxable corporation. The parties would then lease the real estate property to a leasing corporation which would be responsible for leasing the property to various tenants. …

Another common issue arises where a real estate corporation acquires a real estate property on which a hotel or similar business operates. In these cases, there may be a concern that the real estate corporation is performing activities in relation to the property that are not those activities listed in clause 149(1)(o.2)(ii)(A). …

[Based on] IT-73R6…[i]n the context of clause 149(1)(o.2)(ii)(A), it could thus be argued that a real estate corporation that acquires a property on which a hotel or similar business is being operated is providing services in relation to that property and is not be holding, maintaining, improving, leasing or managing the property. Additionally, to the extent that the real estate corporation borrowed funds to acquire the particular property, those funds arguably would not have been borrowed for the purpose of earning income from real property. Thus, in such situations, the real estate corporation would risk losing its tax-exempt status under subparagraph 149(1)(o.2)(ii).

One potential solution to this problem is for the real estate corporation to acquire the land and building on which the hotel or similar business operates (possibly as a co-investment with a third party taxable entity), while another taxable corporation held by the pension plan operates the business (see figure 6). The real estate corporation could lease the land and building to the corporation that operates the hotel or other business.

D. Williamson, "Real Estate Investment Trust", 1997 Corporate Management Tax Conference Report, c. 5.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) 0

Shafer, "Investments in Real Estate by Tax-Exempt Entities and Intermediaries", 1995 Corporate Management Tax Conference Report, c. 13.

Krasa, "Pension Real Estate Investment Corporations: Compliance Issues", 1995 Canadian Tax Journal, Vol. 43, No. 3, p. 610.

Clause 149(1)(o.2)(ii)(B)

Administrative Policy

21 December 2016 Internal T.I. 2013-0508321I7 - Pension Corporations - 149(1)(o.2)(iii)

10% PBSA limitation applied only at pension fund level

For PBSA purposes, the prohibition against a pension plan investing more than 10% of its assets in any one investment is applied at the level of the pension plan, rather than of a subsidiary pension corporation. CRA determined that the policy intent of the permitted investment rule in ss. 149(1)(o.2)(iii), 149(1)(o.2)(ii)(B) and 149(1)(o.2)(ii.1)(B)(IV)) “is to defer to the investment requirements of the PBSA,” so that the same approach is to be followed under such s. 149(1)(o.2) provisions. Accordingly, the pension corporation is not precluded from investing more than 10% of its assets in a single investment.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(o.2) - Subparagraph 149(1)(o.2)(iii) not generally precluded by the permitted investment rule from putting more than 10% of its assets in a single investment 208

Subparagraph 149(1)(o.2)(iii)

Administrative Policy

21 December 2016 Internal T.I. 2013-0508321I7 - Pension Corporations - 149(1)(o.2)(iii)

not generally precluded by the permitted investment rule from putting more than 10% of its assets in a single investment

The prohibition under the PBSA against investing more than 10% of a pension plan’s assets in any one investment (the “10% quantitative limit”) is applied at the level of a pension plan, and not at the level of a pension corporation. Does this approach apply to the permitted investment reference in the preamble to s. 149(1)(o.2)(iii)? In finding that the 10% quantitative limit is applied at the pension plan level rather than at the pension corporation level, the Directorate stated:

[T]he policy intent of the provision is to defer to the investment requirements of the PBSA or provincial pension benefits legislation in establishing the investments that a tax-exempt pension investment corporation is permitted to make.

As a result… it is appropriate to interpret this provision in a manner that is consistent with the manner in which the 10% quantitative limit is interpreted and applied for purposes of the PBSA and provincial pension benefits legislation. Accordingly, we will consider the 10% quantitative limit to be satisfied for the purpose of the preamble to subparagraph 149(1)(o.2)(iii) if it is satisfied for purposes of the PBSA or provincial pension benefits legislation….

This position also extends to the same investment requirements contained in clause 149(1)(o.2)(ii)(B) and subclause 149(1)(o.2)(ii.1)(B)(IV).

10 May 2016 Internal T.I. 2016-0644761I7 - RPP borrowing

149(1)(o.2)(ii) corp. could incur purchase price indebtedness on internal transfer in excess of vendor’s cost

The Directorate considered that a pension plan breached Reg. 8502(i) as the amount of borrowing in respect of certain real estate properties of the Plan exceeded their cost.

The Plan’s advisor proposed:

to transfer all real properties in respect of which there are any potential borrowing issues to a newly-formed real estate corporation that would be wholly-owned by the Plan and exempt from tax under subparagraph 149(1)(o.2)(ii) of the Act. The real estate corporation would assume all of the relevant debt and the Plan would be released as a borrower (although it may still be required to guarantee some of the debts). All future real estate investments and any associated borrowings would be made by the real estate corporation in accordance with subparagraph 149(1)(o.2)(ii).

The Directorate stated that this “appears to be a reasonable solution to resolve past non-compliance.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 8502 - Paragraph 8502(i) pension plan could correct excess borrowing on a going-forward basis through assumption of the debt by a 149(1)(o.2)(ii) sub with plan guarantees 205

17 April 2014 External T.I. 2012-0461151E5 F - pension fund real estate

advance from RPP shareholder is permitted if not evidenced by issuance of debenture etc.

Would an advance made by a registered pension plan ("RPP") to a pension plan investment corporation (“PPIC”) wholly owned by it qualify under s. 149(1)(o.2)(iii)(B)? CRA resonded (TaxInterpretations translation):

[W]here an advance paid by an RPP to a PPIC is not evidenced by the issuance of a bond, note, debenture or similar obligation, we are of the view that that advance complies with the condition in clause 149(1)(o.2)(iii)(B). As required by the preamble in subparagraph 149(1)(o.2)(iii), such advance must in addition be permitted under the Pension Benefits Standards Act, 1985 or a similar law of a province.

14 August 2006 External T.I. 2005-0162911E5 - Subparagraph 149(1)(o.2)(iii) - Investments


Derivatives such as forward contracts, futures, swaps and options would be considered to be qualifying investments provided that they were permitted as an investment for a pension fund or plan under the PBSA or a similar law of a province.

2002 Ruling 2001-010848 -

participating bond

A participating bond that is permitted under the PBSA would be considered to be an investment allowed within the meaning of s. 149(1)(o.2)(iii)(A).

2001 Ruling 2000-005546 -

cash call not debt

A cash call obligation requiring the (o.2) corporation to acquire additional equity in an investment would not constitute a debt obligation for purposes of s. 149(1)(o.2)(iii).

8 May 1997 External T.I. 5-963604 -

refundable commitment fees not income from investments

"Nonrefundable commitment fees, loan fees and inducement payments which can be directly traced to a specific mortgage loan investment would generally constitute income from investments under clause 149(1)(o.2)(iii)(C) of the Act. However, in the case of refundable commitment fees, such fees would be earned only if the investment is not made. Given that there is no related investment, it is our view that refundable commitment fees would not normally constitute income from investments notwithstanding that they would constitute income from an investment business."

15 February 1993 T.I. 9231345 [loan from pension fund shareholder]

loan from pension fund shareholder

Does a non-interest bearing demand loan by a pension plan to a subsidiary corporation to facilitate the transfer of monies into and out of the corporation comply with s. 149(1)(o.2)(iii)(B)? CRA stated:

"A non-interest bearing loan from a pension plan to a subsidiary corporation to facilitate the transfer of monies into and out of the corporation would not be prohibited by virtue of clause 149(1)(o.2)(iii)(B) as long as such a loan was permitted under the PBA."


Jack Silverson, Bill Corcoran, "Issues Affecting Investments by Canadian Pension Plans in Private Equity, Infrastructure and Real Estate in Canada, the USA and Europe", 2016 Conference Report (Canadian Tax Foundation),15:1-40

Interpretation of 10% limit in PBSA Regulations, Sched. III, s. 9(1) (“10% Rule”) (pp. 15:4-6)

The purpose of the 10 percent rule was also considered in R v Christophe, et al. [fn 8: 2009 ONCJ 586 at para 138]. The court stated the purpose as follows:

...[T]he provision targets the overall amount held in any one place, such that there not be any new advances which would result in holdings beyond the quantitative limits. …

An analysis of the legislative intent behind subparagraph 149(1)(o.2)(iii) and the plain wording of the provisions demonstrates that the 10 percent rule for the purposes of the Act should be interpreted to apply at the pension plan level and not at the investment corporation level. Such an interpretation is also consistent with well-established rules of statutory interpretation.

Interpretation of 30% limit in PBSA Regulations, Sched. III, s.11 (“30% Rule”) (p. 15:8)

...Note that the 30 percent rule applies only to securities to which more than 30 percent of the voting rights are attached. It does not prevent a pension plan from holding securities to which more than 30 percent of the value of the corporation are attached. ...

Thin cap and SIFT extension proposals (pp.15:8-17)

In June 2016, the government of Canada released a consultation document…[which] indicated that the government was contemplating two tax proposals to "address tax fairness and efficiency issues associated with pension plan control of Canadian business entities"

1) extending the thin capitalization rules to corporations in which tax-exempt entities invest and

2) extending the specified investment flowthrough (SIFT) rules to apply to partnerships and trusts in which tax-exempt entities invest. ...

...If the thin capitalization extension proposal is implemented, it will apply when the tax-exempt entity holds more than 25% of the votes or value of the corporation... . In these cases, the interest deductions claimed by the operating corporation will be reduced to the extent that the debt-to-equity ratio exceeds 1.5 to 1. This will affect both the tax-exempt investment corporation and the taxable investors in the operating corporation. …

...The consultation document asks whether the SIFT Rules should apply to pension controlled trusts and partnerships, but there is no indication of what is meant by the term "pension controlled"….

...The consultation document…seems to suggest that the SIFT extension proposal could apply at an ownership level of 50 percent or lower. It is not clear whether such a test would be applied on the basis of holdings by a single plan in the trust or partnership (the "single plan specified limit test") or the aggregate holdings of all plans in the trust or partnership (the "aggregate holding specified limit test").

...Subjecting Holdings LP to entity-level taxation will not only adversely affect pension plans that invest in Holdings LP, but would also adversely affect the taxable infrastructure developer. ...

Requirement in s. 149(1)(o.2)(iii)(A) for an “investment” (pp. 15:11-10)

...A common issue that arises with respect to infrastructure investments is whether a limited partnership interest is an "investment" for the purposes of clauses 149(1)(o.2)(iii)(A) and (C). …

...[T]he technical notes to section 253.1 implicitly contemplate that a partnership interest would be an investment for the purposes of paragraph 149 (1)(o.2) and it would be illogical if this conclusion did not apply to the investment tests in subparagraph 149(1)(o.2)(iii). The foregoing is consistent with the CRA's position, based on the technical notes to section 253.1, that a limited partnership interest can be an investment for the purposes of subparagraph 149(1)(o.2)(iii). [fn 25: …2000-0055463, 2005-0151691E5 and 2005-0126841R3.]

Requirement in s. 149(1)(o.2)(iii)(C) for income to be derived from an “investment” (pp. 15:12-13)

...[C]lause 149(1)(o.2)(iii)(C) requires that the investment corporation derive at least 98 percent of its income from its investments or from dispositions of its investments. ….

...[T]he courts have taken the view that "derived" refers to source or origin. [fn 28: …Gilhooly v. M.N.R., [1945] CTC 203 (EC), Westar Mining Ltd. v. R., 92 DTC 6358 (FCA), M.N.R. v. Hollinger, [1963] CTC 51 (SCC), M.N.R. v. Bessemer Trust Co., [1972] CTC, 473 (FCTD) and Kemp v. M.N.R., [1947] CTC 343(Ex. Ct.). See also…9636045] It is clear that the income allocated to an investment corporation by a limited partnership only arises (in other words, has its origin or source) as a result of the investment corporation's investment in the limited partnership. ...

Requirement in s. 149(1)(o.2)(iii)(B) not to issue debt securities (pp. 15:14-16)

...[U]nder Canadian provincial partnership law it is generally considered that partnerships cannot contract independently of their partners, and that when an agent of the partnership (for example, a general partner of a limited partnership) enters into a contract on the partnership's behalf, all of the partners have incurred the obligations which flow from the contract. [fn 31: See, for example, Molson Brewery BC Ltd. v Canada, 2001 CanLii 22132(FCTD) and Klein v. The Queen, 2001 DTC 443, at paragraph 22…] …

...The issuance of debt should be viewed as part of the "business" or "activity" of the partnership that would, as a result of section 253.1, not be considered to be carried on by the investment corporation. ...

This position was also supported by…Consolidated Mogul…:…

...Obviously, the financing function of a mining company is an integral part of its business. …

Additional certainty with respect to the issues discussed above can be achieved by having the investment corporation acquire units of a unit trust which then acquires the interest in the limited partnership. …

...On the basis of trust law principles alone,…an issuance of a debt obligation (or a note, bond, debenture or similar obligation) by the trustee of a unit trust to a third party would not be considered to be the issuance of a debt obligation (or a note, bond, debenture or similar obligation) by the beneficiary of the trust. …

Consistent with the general scheme for the taxation of trusts and their beneficiaries, the CRA has issued a technical interpretation that states that when an investment corporation is a beneficiary of a trust, the investment corporation is not considered to be the issuer of debt obligations issued by the trust. [fn 39: 2006-0195451R3…]

Words and Phrases

Subparagraph 149(1)(o.2)(iv)

Administrative Policy

28 May 2015 External T.I. 2015-0582901E5 - 149(1)(o.2) Pension corporation

trust/seg fund shareholder can have only one beneficiary

Is a related segregated fund trust that has only one beneficiary (which is a registered pension plan) a permissible shareholder of a tax-exempt pension corporation pursuant to s. 149(1)(o.2)(iv)(C)? CRA responded:

Subsection 33(2) of the Interpretation Act provides that words in the singular include the plural and words in the plural include the singular. Thus, for the purpose of clause 149(1)(o.2)(iv)(C), the reference to a related segregated fund trust all the beneficiaries of which are registered pension plans can include a related segregated fund trust that has only one beneficiary, provided the beneficiary is a registered pension plan. The same position applies for the purpose of clause 149(1)(o.2)(iv)(B) of the Act and paragraphs 4802(1)(a) and (f) of the Income Tax Regulations, which contain similar language, provided the beneficiary is of the type listed in the applicable provision.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) reference to beneficiaries includes single beneficiary 56

Paragraph 149(1)(o.4) - Master trusts

Administrative Policy

14 August 1992 T.I. (Tax Window, No. 23, p. 19, ¶2143)

Provided all relevant conditions are satisfied, once a trust elects to be a master trust in a taxation year, it will be exempt from tax for the entire year in which the election is made.

1 October 1991 T.I. (Tax Window, No. 10, p. 23, ¶1490)

A master trust that was in existence before the enactment of s. 149(1)(o.4) which elects under that provision will have its period of exemption commence no earlier than the beginning of the taxation year for which the election was made.


Krasa, "Income Tax Implications of Joint Investment by Pension Plans through a Private Pooled Fund Vehicle", 1997 Canadian Tax Journal, Vol. 45, No. 1, p. 1.

Paragraph 149(1)(t) - Farmers’ and fishermen’s insurer

Administrative Policy

28 June 2010 External T.I. 2009-0342671E5 - Paragraph 149(1)(t) - non-resident insurers

The exemption in s. 149(1)(t) is available to a non-resident insurer; and in applying ss. 149(4.1) and (4.2) the activities of the non-resident insurer as a whole must be considered rather than only those of its Canadian branch.

21 December 1993 T.O. 933153 (C.T.O. "Unable to Rule/Question of Fact")

For purposes of the requirement in s. 149(1)(t) that the person not be engaged in any business (other than insurance) "if the nature of [a] computer software operation is an incidental one such that, objectively, it can be said to be carried out solely in an attempt to defray or recover the development costs [the person] would otherwise incur in any event to create the software for its use, then the Department would not likely consider the operation to be a business."

29 January 1990 Memorandum (June 1990 Access Letter, ¶1279)

Where properties are only partly used in a farming business, one must examine the nature of the property and the proportion in which it is used in the farming business. For example, because the nature of a tractor relates more to farming than any other business, a tractor will be farm property provided that the non-farming use (such as the provision of a snow-removal service) is minimal. Property owned by a farmer prior to his retirement will cease to be farm property. The concept of a farmer's residence is discussed.

Paragraph 149(1)(w)

Administrative Policy

28 June 2017 External T.I. 2017-0705431E5 - funds held in settlement account

court-supervised settlement fund for class action was not required by a law

Settlement funds received by a law firm from the defendant in a class action suit areheld in a settlement trust, to be applied solely for compensating class members after approval of the terms of the settlement by final Court order. In the meantime, a T5 slip is issued annually to the “law firm in trust” respecting interest earned on these funds. In finding that such interest is not exempt from tax under s. 149(1)(w), CRA stated:

[T]he words of paragraph 149(1)(w) require that a trust be set up according to or pursuant to a specific law rather than pursuant to a court decision facilitating the administration of the law. There is no law in this case specifically requiring a trust to be established to provide funds out of which to compensate persons for claims against the owner of a business. Furthermore the law must identify the particular business and as such paragraph 149(1)(w) is not intended to shelter from taxation all income that may arise from funds required to be held in trust by court order.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 150 - Subsection 150(1.1) - Paragraph 150(1.1)(b) - Subparagraph 150(1.1)(b)(i) class-action settlement fund was required to file T3 returns 179
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c) litigation settlement trust with class action beneficiaries required to pay tax and file T3 returns 114

Subsection 149(1.2) - Income test

Administrative Policy

26 February 2014 External T.I. 2014-0518651E5 - 149(1)(c) - municipal corporation


Respecting whether income received from the Ontario Power Authority would be exempt from tax under paragraph 149(1)(c), CRA referred to the exemptions in ss. 149(1)(c) and (d.5), and then stated:

Subsection 149(1.2) excludes certain income from the determination of whether more than 10% of the income (of the corporation to which paragraph 149(1)(d.5) applies) is derived from activities carried on outside the relevant geographical boundaries. Generally, income derived from activities carried on pursuant to an agreement in writing between the corporation and Her Majesty in right of Canada or a province, or a municipality or a public body performing a function of government, or certain subsidiaries, within their geographical boundaries, are not included in the determination. Additionally, income is excluded from activities carried on in a province as a producer of electrical energy or natural gas, or as a distributor of electrical energy, heat, natural gas or water, where the activities are regulated under the laws of the province.

Subsection 149(3) - Application of s. (1)


Actra Fraternal Benefit Society v. Canada, 97 DTC 5243 (FCA)

Investments allocated by the taxpayer to its life insurance fund were in excess of those necessary to meet the risks of the life insurance business carried on by it. Accordingly, the investment income on the excess was free from tax.

Robertson J.A. noted that the argument of the Minister that the decision of the taxpayer to maintain the excess funds in the life insurance business was determinative of the matter amounted to an argument that there should be a subjective standard of "necessity" and not an objective one as established in McCutcheon Farm Ltd. v. The Queen, 91 DTC 5047 (FCTD).

Subsection 149(4) - Idem [Application of s. (1)]


Lutheran Life Insurance Society of Canada v. The Queen, 91 DTC 5553 (FCTD)

A fraternal benefit society which carried on a life insurance business, and an accident and sickness insurance business and also other fraternal activities for the benefit of its members (who were associated with various branches of the Lutheran church), did not establish separate accounts for its fraternal activities, and did not identify any assets or income earned in relation to fraternal activities in its financial returns. The Society was found to have failed to establish that it was entitled to a deduction from investment income for fraternal purposes given that it proposed no basis for such a deduction other than its own recognition that a notional portion of its assets related to fraternal purposes other than insurance, and the proposed application (by analogy) of the formula in regulation 2400, which admittedly did not apply to its case.

Subsection 149(5) - Exception re investment income of certain clubs


Point Grey Golf & Country Club v. Canada, 2000 DTC 6217 (FCA)

A golf club that qualified as a non-profit organization under s. 149(1)(l) was operating at a slight loss before it raised $4.2 million to help fund a building expansion. The interest earned on short-term high grade securities in which this money was invested before expended on the expansion was income from property (rather than income from a business) and, accordingly, was taxable under s. 149(5).

See Also

Elmridge Country Club Inc. v. The Queen, 99 DTC 5127 (FCA)

Interest income derived by a golf club from the temporary investment of cash surpluses were taxable. Décary J.A. rejected a submission that income from activities that were incidental to the non-profit activities of the club were not intended to be taxable.

Words and Phrases
income from property

Administrative Policy

2016 Ruling 2015-0593841R3 - Sale of XXXXXXXXXX Club

no effect of s. 149(5)(e)(ii) on CDA amount

Shares for an incorporated club (likely a golfing club) had outstanding shares held by its members which were entitled to receive dividends, subject to a restriction in its letters patent prohibiting the payment of any income as determined under s. 149(2) (i.e., income other than taxable capital gains). The club sold its land and building, leased back a portion of the property from the purchaser and paid a capital dividend to its shareholders.

CRA ruled that the excess of the capital gain realized over the taxable capital gain was added to the club’s capital dividend account, notwithstanding that the portion of the taxable capital gain was exempt under s. 149(5)(e)(ii) (as being from property used directly in providing dining, recreational or sporting facilities) and that this capital dividend did not cause the club to cease to be exempt under s. 149(1)(l).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l) CRA rules on the payment of a substantial capital dividend by a s. 149(1)(l) incorporated golf club 334

13 May 2014 Internal T.I. 2013-0499041I7 - Subparagraph 149(5)(e)(ii)

sale of largely vacant land

A private member golf club disposed of the land located across the street from the main entrance which was vacant except for a pump house which formerly had been used in connection with irrigating the golf course but now was purportedly held as a backup s]water source (to pump water from the adjacent river) if the primary water source failed.

In finding that the taxable capital gain was taxable, CRA stated:

[V]acant land does not qualify as being used "exclusively for and directly in the course of providing dining, recreational or sporting facilities" and as a result the sale of vacant land by an 149(1)(l) organization is taxable regardless of the reason that the land was vacant. The Club has not provided an explanation on why it required XX acres as a backup water source or any evidence to show how the pump house was maintained or used as a backup water source over the last XX years.

12 April 2013 External T.I. 2012-0460901E5 - Capital Gain on Sale of Property by NPO

An NPO (the "Club") owned a clubhouse. "In recent years, the Club has reported revenue from bar sales to members and hall rentals to non-members." The correspondent asked whether a sale of the clubhouse would be exempt. CRA first reviewed the "main purpose" test:

The dictionary meaning [of "main"] seems to be synonymous with "chief in size or extent" or "pre-eminent importance" or "primarily". The CRA will generally consider that the main purpose of an organization is to provide recreational, dining or sporting facilities to its members where more than 50% of its assets, revenues, time, attention and efforts are expended in providing these facilities to its members.

In then finding that the gain from the clubhouse sale was exempt, CRA mentioned that IT-83R3 states that "a club is not deprived of the exemption from the capital gain and loss provisions [of subparagraph 149(5)(e)(ii)] by reason only of occasional rental of its property to non-members," and also stated:

[Subsection 149(5)] is intended to tax income from property (including capital gains) earned from investments and other assets that are not exclusively and directly used in providing the services of the organization. Thus, while an organization may own several assets, in our view, it is only the capital gains arising on the disposition of those assets which are required and used to ensure that the organization's objects are met that are not subject to tax.

2011 Ruling 2011-0400741R3 - Disposition of Property - XXXXXXXXXX Club

ruling that the gain from the sale of a clubhouse and adjacent land would be exempt under s. 149(5)(e).

9 July 1993 T.I. (Tax Window, No. 33, p. 7, ¶2642)

S.149(5) will apply to funds accumulated by a non-profit organization to build an arena.

4 September 1991 T.I. (Tax Window, No. 9, p. 15, ¶1439)

S.149(5) would apply to the investment income earned by a minor hockey league on fees collected at the beginning of the season and invested in income-earning securities until needed.

23 February 1990 T.I. (July 1990 Access Letter, ¶1340)

Discussion of treatment of dividends and interest earned.

IT-83R3 "Non-Profit Organizations - Taxation of Income from Property"

Paragraph 149(5)(e)

Subparagraph 149(5)(e)(ii)

See Also

Mont-Bruno C.C. Inc. v. The Queen, 2016-1152(IT)G, 21 March 2017

not clear negligence to not report sale of adjoining wooded lands

A non-profit organization operating a golf course was assessed well beyond the normal reassessment period on the basis that a gain realized by it on selling some wooded land adjacent to its golf course (but on the other side of the road and with a different zoning) was not exempted under s. 149(5)(e)(ii) as being used directly and exclusively in the course of providing its sporting facilities. After striking two allegations of mixed fact and law in the Minister’s Reply, including one that merely paraphrased the s. 149(5)(e)(ii) test rather than containing only factual allegations, Paris J found that the remaining factual allegations in the Reply, if proven, would have been insufficient to establish that there had been a misrepresentation attributable to neglect etc. Accordingly, the Minister’s Reply was struck as disclosing no reasonable cause of action.

However, as it was possible that the Minister would be able to draft an amended Reply to support the late assessment, she was given 60 days to file an amended Reply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) Minister’s Reply lacked cogent factual allegations to justify a statute-barred assessment 396

Subsection 149(10) - Exempt corporations

Administrative Policy

6 March 2015 Internal T.I. 2014-0549761I7 - Internally generated goodwill & excluded property

unpurchased goodwill is taken into account

Before going on to indicate that internally generated goodwill is considered in determining whether shares of a foreign affiliate of a corporation resident in Canada qualify as "excluded property" of another foreign affiliate of the corporation, CRA noted that in 9319777 and in 2002-0126653 "this Directorate took the position that internally generated goodwill was property of the taxpayer immediately prior to the transition time such that it was deemed to be disposed of, and reacquired, by the taxpayer for an amount equal to its fair market value."

See summary under s. 95(1) – excluded property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation unpurchased goodwill is taken into account 97
Tax Topics - Income Tax Act - Section 95 - Subsection 95(1) - Excluded Property unpurchased goodwill is taken into account 193

2013 Ruling 2012-0463361R3 - Withdrawal of Ruling Request

The taxpayer withdrew its request upon being orally informed that:

1) A deemed disposition of property under s. 149(10)(b) at a particular time (perhaps when the not-for-profit organization (NPO) decided to sell its assets) and the actual sale of the assets by a corporation after that time are two different events that must be reported separately for tax purposes.

2) Since, for the purposes of applying, among other things, s. 111, the corporation is deemed to be a new corporation, the losses incurred when NPO was exempt from tax under Part I could not be carried forward to a taxation year following its last taxation year as an exempt entity.

3) S. 89(1.2) provides that a corporation which ceases to be exempt from tax under Part I at a particular time will have a nil balance in its capital dividend account at and after that particular time, so that the NPO would have no CDA.

An invoice for the time spent would be sent.

28 April 1994 Memorandum 933101 (C.T.O. "Terminal Losses & Loss of Tax-Exempt Status")

A terminal loss in the year of change from exempt to taxable status is deductible. The corporation will be able claim that amount in a future year only to the extent that it could not be deducted in the year ending at the time of the change of status or as a non-capital loss in the three preceding years.

22 November 1993 T.I. 932336 (C.T.O. "Non-Profit Organization - Terminal Losses")

Where an exempt corporation has depreciable property at the time it ceases to be an exempt corporation, and it realizes a terminal loss pursuant to s. 149(10)(b), it will be able to claim that amount in a future year only to the extent it could not be deducted in the year ending at the time of the change of status or as a non-capital loss in the three preceding years.


Brown, "The Transfer of Property on Death: Ownership, Control and Vesting", 1994 Canadian Tax Journal, Vol. 42, No. 6, p. 1449.

4 December 2014 T.I. 2014-0529681E5 [non-qualified stock dividend on qualified or non-qualified shares]: 1. An RRSP trust, which holds shares of Company A that are a non-qualified investment, receives a stock dividend comprising additional shares of the same class. 2. The RRSP trust holds shares of Company X, which are a qualified investment, and receives thereon a dividend in kind of shares of Company Y that are a non-qualified investment. Does s. 146(10.1) or 207.04(1) apply? CRA responded:

In Scenario 1, because the shares of Company A are non-qualified investments, the RRSP trust will be subject to Part I tax pursuant to subsection 146(10.1)… in respect of its income from the stock dividends paid by those shares. In addition, the annuitant of the RRSP will be liable for the tax payable on non-qualified investments… pursuant to subsection 207.04(2)…, the… tax payable is equal to 50% of the fair market value of the additional Company A shares at the time they are received… .

In Scenario 2, the annuitant of the RRSP will be liable to pay the 50% tax payable under subsection 207.04(1) of the Act subject to a possible refund of the tax pursuant to subsection 207.04(4) of the Act as a result of the RRSP trust's acquisition of the non-qualified Company Y shares. Because the shares of Company X are qualified investments, the RRSP trust will not be required to pay Part I tax under subsection 146(10.1)… . in respect of… the in-kind dividend of Company Y shares;