A corporation (the DLCC), which had been operating a club for the purposes of pleasure and recreation of the members and of the community was, as a result of the repeal of its governing Act (the “DLCC Act”), continued under a Corporations Act as a non-share capital corporation, so that the DLCC shares were exchanged for membership interests.
Did such conversion of DLCC to a non-share capital corporation impact its compliance with s. 149(1)(l)?
CRA indicated that, for s. 149(1)(l) purposes, an organization may be a share capital or non-share capital corporation, and also noted:
- Regarding the s. 149(1)(l) requirement that the organization be organized and operated “exclusively for any other purpose except profit,” the “use of the word ‘exclusively’ indicates that while an organization may have many purposes, none of those purposes may be to earn a profit.”
- Furthermore, “it is possible for an organization to meet the requirements of federal or provincial “not-for-profit” corporate legislation, but not qualify for the tax exemption provided under paragraph 149(1)(l).”
- For instance, if the DLCC were continued under the Canada Not-for-Profit Corporations Act (the “CNFPCA”), the satisfaction by it the CNFPCA requirement that “no part of a corporation’s profits or of its property or accretions to the value of the property may be distributed, directly or indirectly, to a member....except in furtherance of its activities...” would be consistent with the organization being operated with a profit purpose, albeit with such profits being used in support its objectives.