Revenue Canada Taxation Head Office
C. Tremblay (613) 952-1361
Attention: XXXX
January 9, 1992
Dear Sirs:
Re: XXXX
This is in reply to your letter of September 30, 1991. concerning whether the XXXX can now be registered as a not-for-profit corporation for the purpose of carrying on scientific research and experimental development ("SR&ED").
Whether XXXX qualifies under paragraph 149(1)(j) of the Act, is a question of fact. There is no need to register as a SR&ED corporation. The provisions of paragraph 149(1)(j) of the Act contains criteria which must be met on an annual basis.
To be a 149(1)(j) corporation, the corporation must be constituted exclusively for the purpose of carrying on or promoting scientific research and experimental development. It also must have no income payable to, or available for, the personal benefit of any proprietor, member or shareholder thereof, must not have acquired control of any other corporation and must not carry on any business.
In the case of proposed corporations, the Rulings Directorate can review proposed constituting documents and provide a ruling that the corporation is constituted properly to be considered a non-profit corporation. However, this would not be determinative of the issue in any particular taxation year. A determination of whether a non-profit corporation was operated in accordance with the statutory requirements of paragraph 149(l)(j) of the Act in a particular taxation year is based on the facts of that year. The information can be obtained only 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. Nevertheless, there is nothing in the limited information which you have provided which would suggest that XXXX would not qualify under paragraph 149(1)(j) of the Act.
The T-2 return submitted with your letter is incomplete. As mentioned in Information Circular 85-3R3, The Income Tax Act requires that a return of income be filed in prescribed form and contain detailed information required by the form. The corporation return must contain complete financial statements and include an auditor's report, if one was prepared for the particular taxation year. Where a corporation has been inactive or dormant, with no financial transactions during a taxation year, the return must contain at least a balance sheet showing the financial position of the company at the end of its taxation year. The list of questions on page 2 of the return must also be completed.
Once completed the return should be sent to the following address:
Winnipeg Taxation Centre, 66 Stapon Road, Winnipeg, Manitoba, R3C 3M2
Although you requested that your registration as a Charitable Organization be deactivated, we caution you about the consequences of such a strategy. The Income Tax Act specifies a number of causes for which a charity's registered status under the Income Tax Act may be revoked (i.e. deregistered) at the Minister's discretion. Some revocations are initiated at the charity's own request, for example, when it ceases to operate. The "deactivation" of charitable status which your letter refers to could, in our view, be achieved only by requesting a revocation. A revoked charity loses its registered charity status, may lose its tax-exempt status, can no longer issue official donation receipts to donors so that they may claim these gifts for income tax relief, and may face a penalty tax. Revocation is effected by a Notice of Revocation being published in the Canada Gazette. A revoked charity has up to one year from when its charitable registration is revoked to turn over its remaining assets to charitable works or to pay bona fide debts; if it does not do so, it may be subjected to a penalty tax equal to 100% of the value of any remaining assets.
You may also wish to note that a charitable organization may carry on business which is related to its charitable activities, while an SR&ED corporation must carry on any business. Should you wish to request revocation of charitable registration, please address your request to:
Mr. R. Davis, Director, Revenue Canada Taxation, Head Office, Charities Division, 700 Industrial Ave., Ottawa, Ontario, K1A 0L8.
We trust our comments will be of assistance to you.
Yours truly,
for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch