The taxpayer, whose letters patent stated that "in no event shall the purposes of the organization and/or operation of the Corporation include profit" sponsored (but did not underwrite) national insurance programs for lawyers and negotiated with insurance companies with respect to particular products in the insurance programs and their cost. For the initial taxation years in question, the taxpayer had three basic sources of annual revenue: a 5% administration fee retained by it from premiums it collected on behalf of the insurers; amounts remitted to it by the insurance companies (in years where claims were low) pursuant to a retention agreement for the purpose of funding a stabilization reserve (i.e., for the purpose of producing more stable premiums over time); and investment income earned on the stabilization reserves. The basic program was altered somewhat in the later taxation years.
In finding that even though there was "no doubt that the Appellant engages in a high level of commercial activity" (p. 661), e.g., invoicing and collecting premiums, negotiating lower commission rates and entering into complicated retention agreements, and even though the taxpayer earned substantial profits in some years under the above arrangements, its preponderant purpose was to facilitate the availability of insurance products at cost to the legal community in Canada; and the large reserve did not reflect a profit purpose but, rather, a purpose of providing service to members. Accordingly, the taxpayer was not only not organized for profit, but also was not operated for profit.