Revenue Canada Taxation Head Office
XXXX
P.K. Tang (613) 995-1787
Attention: XXXX
November 27, 1984
Dear Sirs:
This is in reply to your letter of October 25, 1984 wherein you request our confirmation that the registered status of a charitable organization would not be prejudiced by its owning the majority shares or acquiring control of a corporation which carries on a business that is related or unrelated to the objects of the organization. It is your view that there does not appear to be any restriction against a registered charitable organization from owning the majority shares or acquiring control of such a corporation although such restriction appears in the case of a public or private foundation.
Under subsection 149.1(3) or 149.1(4) of the Act the registration of a public or a private foundation may be revoked if the foundation, since, June 1, 1950, acquired control of any corporation. However, such restrictive provision is not found in subsection 149.1(2) of the Act. This subsection provides only that the registration of a charitable organization may be revoked where the organization a) carries on a business that is not a "related business" of that charity or b) fails to expend in any taxation year, on charitable activities carried on by it and by way of gifts made to qualified donees certain specific amounts.
The term "related business" is not defined in the Act. Paragraph 149.1(1)(j) of the Act states that "related business" in relation to a charity includes "a business that is unrelated to the objects of the charity if substantially all of the people employed by the charity in the carrying on of that business are not remunerated for such employment". Hence, we are inclined to agree with you that a charitable organization's registration would not be revoked under subsection 149.1(2) of the Act for owning the shares or acquiring control of a corporation which carries on a business related or unrelated to the objects of the charity.
However, under paragraph 149.1(1) (b) of the Act, to qualify as a "charitable organization" an organization must devote "all of its resources" to charitable activities carried on by it. In our view if an organization invested its resources in all or the majority of the shares of a corporation an argument could be made that it did not devote "all" of its resources to charitable activities, and hence may not qualify as a "charitable organization" under that paragraph.
We hope the above will be helpful.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch