| 24(1) | 5-902455 |
| R.D. Mundell | |
| (613) 957-2139 |
19(1)
October 30, 1990
Dear Sirs:
Re: Non-profit Organization - Receipt of Taxable Dividend
This will reply to your letter of September 10, 1990 requesting our comments regarding the tax implications relating to the receipt of a taxable dividend by a non-profit organization.
Our understanding of the facts is as follows:
1. An Association, which operates as a non-profit organization (NPO) as set out in subsection 149(1)(1) of the Income Tax Act (the Act), is the sole shareholder of a subsidiary corporation.
2. The subsidiary, a taxable corporation, has accumulated income since inception.
3. The subsidiary is contemplating a 24(1) dividend to the NPO out of last year's income and possibly as 24(1) after the end of the current year.
You are concerned that the dividends could be taxable.
It is our view that for purposes of paragraph 149(1)(1) of the Act, the Association would not be adversely affected by the receipt of dividends or any other type of income provided the income is used for the activities which qualify the Association as a non-profit organization, unless the Association is a club, society or association the main purpose of which is to provide dining, recreational or sporting facilities for its members in which case such income would be subject to the provisions of subsection 149(5).
However, if any part of the income was used or otherwise available for the personal benefit of any member, the Association would not qualify for exempt status under paragraph 149(1)(1) of the Act.
We caution that the above comments represent an expression of opinion only, and as such, are not binding upon the Department.
Yours truly
for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch