24(1)
902600
Glen Thornley
(613) 957-2101
19(1)November 22, 1990
Dear Sirs:
24(1)
This is in reply to your letter of September 27, 1990 in which you set out the background as well as the basis upon which you will, providing you received a favourable response, request an advance income tax ruling on behalf of a proposed non-profit organization.
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You have set out the various objectives and activities of the proposed NPO as well as other pertinent clauses, such as, one dealing with the winding-up and another prohibiting the payment of dividends or making any distribution of profit to its members. You also set out briefly, case law in support of your position that the proposed entity qualifies as a NPO.
We have considered the merits of your proposal and have studied the case law cited in it, however, we are not convinced that a ruling can be given on the strength of your argument that all profits will ultimately vest in a charitable organization. We do not agree, for instance, that the St. Catherines Flying Training School Ltd. case stands for the proposition that an organization can have, as its primary purpose, a profit motive and still be an NPO just because its objects provide for all remaining profit to be turned over to the Crown or to some other organization approved by the Crown. In the first instance the Training school was not incorporated as an NPO and the contract entered into with
the Crown did not restrict the payment of dividends, with the result that the Training school was found to be taxable. The Training school was found not to be taxable with respect to the second contract, not on the basis that it qualified for an exemption as an NPO, but rather "on the ground that there was no income": see page 1147 of the DTC report. This is more like the bare trustee arrangement which you had considered at one stage in your discussions with Charities Division.
As you are aware, advance income tax rulings with respect to NPO's are only given where we are assured that the organization is organized for non-profit purposes. We do not rule whether or not they are operating as NPOs as this is a question of fact, the determination of which can only be established at the end of a particular taxation year of an NPO. In your situation we are unable to rule as in our view profit is the main purpose of the proposed corporation.
We regret our opinion could not be more favourable.
Yours truly
for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch