| December 3, 1990 | |
| PENTICTON DISTRICT OFFICE | HEAD OFFICE |
| Appeals & Referrals Division | Business and General |
| Division | |
| C. Tremblay | |
| Attention: R. Philion | (613) 952-1361 |
| Audit Review | |
| 903163 |
SUBJECT: 24(1) Status as a Non-Profit Organization - Paragraph 149(1)(l) of the Income Tax Act ("The Act")
This is in reply to your memorandum of November 5, 1990, requesting our comments as to whether 24(1) would now qualify as a non-profit organization, in light of additional information provided by the taxpayer further to our memorandum of April 23, 1990.
24(1)
Our Comments
In order for the organization to qualify for exempt status under paragraph 149(1)(l) of the Act it must be both organized and operated exclusively for any other purpose except profit, and no part of the income may be available for the personal benefit of any member.
The organizational structure and purpose of the organization in our view now satisfies the requirement that it be organized for "any other purpose except profit". Of course, this will not affect any period prior to the formal amendment of 24(1) constituting documents. To maintain an exemption under paragraph 149(1)(l) of the Act, however, the activities must be consistent with these aims.
Where an organization is engaged in operations designed to make a profit, it cannot qualify as having been organized and operated exclusively for any other purpose except profit unless there is a causal relationship between the profit-making activity and the exempt purpose of the organization. It is quite possible for an organization to make profits. Indeed paragraph 149(1)(l) assumes the organization would be taxable under Part I, otherwise there would be no need for this paragraph in the Act. Many non-profit organizations must have a regular and reliable source of income in order to continue to operate as a viable self-supporting organization. 24(1)
In recent decisions, the courts have been applying the purpose test. In Gull Bay Development Corporation v The Queen 84 DTC 6040 (FCTD), the courts held that the corporation's activities were carried on for purposes other than profit despite the fact that only 50% of the corporation's staff's time was taken up with non-profit activities. 24(1) Notwithstanding the fact that an organization may carry on a commercial operation and still be considered to be operating exclusively for a non-profit purpose, the profit-making commercial operation of 24(1) may 24(1) not be incidental to the attainment of the organization's non-profit objectives and all the revenues generated by the commercial operation may not be used to fund the non-profit activities of the organization.
24(1)
In conclusion, 24(1) This information, however, can only be obtained by reviewing, during the course of an audit, all of its activities for that year. Such a determination cannot be made in advance of or during a particular year but only after the end of the year.
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