Principal Issues: [TaxInterpretations translation] When does a company cease to be a NPO?
Position: Question of fact.
XXXXXXXXXX 2007-026286 Michel Lambert CA, M.Fisc. May 12, 2008
Dear Sir,
Subject: Not-for-profit company
This is in response to your letter of December 17, 2007 asking when a company would lose its status as a not-for-profit organization.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Your request relates to transactions that have already taken place. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, the determination of whether a completed transaction has received appropriate tax treatment is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. We therefore invite you to contact the Tax Services Office serving your client with all the relevant facts. We will also need the identity of your client and satisfactory evidence that you are authorized to represent the client. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Paragraph 149(1)(l) provides, inter alia, that a club, society or association must be organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, and that no part of its income may be payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder.
We are of the view that the question of whether a corporation is organized and operated exclusively for pleasure or recreation is a question of fact. On the one hand, in determining whether it was incorporated in such manner as to satisfy the requirements of paragraph 149(1)(l), we are of the view that all of its incorporating documents must be considered. On the other hand, the question of whether it is being operated in a manner that satisfies the requirements of that paragraph can only be resolved after taking into account all of its activities and all relevant facts during the relevant period. The Agency can only decide on this question after considering all these relevant facts and activities, which is usually done in an audit.
Thus, paragraph 149(1)(l) applies only to clubs, societies or associations that carry on the activities referred to in that paragraph. If, at any time, a corporation no longer carries on any of the activities referred to in paragraph 149(1)(l), it is our view that it ceases, at that time, to be eligible for the exemption provided for in paragraph 149(1)(l).
If, at any time, a corporation ceases to be exempt from tax under Part I on its taxable income, the rules in subsection 149(10) must be applied. In addition, if the corporation confers a benefit on one of its shareholders, the provisions of subsection 15(1) may apply.
This opinion is not to be construed as an acquiescence on our part that we have agreed that no tax is payable under Part I on your client's taxable income because of the application of paragraph 149(1)(l) or any other provision of the Act. Furthermore, it cannot be construed as an acquiescence that we have accepted, considered or determined any tax consequences that may result from the facts you have brought to our attention.
As stated in Information Circular 70-6R5, this opinion is not an advance income tax ruling and is not binding.
Best regards,
Louise J. Roy
Interim Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings
Legislative Policy and Regulatory Affairs Branch.