Topics: Canadian Charity Law, Business Activities and Canadian non-profits and charities
This CRA letter deals with “whether a charity’s status is at risk where the charity holds shares of a subsidiary corporation carrying on a business involving rental and sale of real estate”
AUTHOR Demeter, Robert
SUBJECT Charity owning shares of a subsidiary corporation
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Whether a charity’s status is at risk where the charity holds shares of a subsidiary corporation carrying on a business involving rental and sale of real estate.
POSITION: Question of fact.
REASONS: The determination depends upon whether the relationship between the charitable organization and the subsidiary corporation is suggestive of activities that are other than passive in nature.
XXXXXXXXXX Robert Demeter, CGA
August 18, 2009
Dear XXXXXXXXXX :
Re: Charitable organization owning shares of a taxable Canadian corporation
This is in reply to your letter of January 9, 2009, in which you requested our comments on the implications of a charitable organization holding shares of a subsidiary corporation that operates a business involving the rental and sale of real estate.
The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate’s practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments which may be of assistance.
Pursuant to its definition in subsection 149.1(1) of the Income Tax Act (the “Act”), a “charitable organization” must, inter alia, devote all of its resources to charitable activities carried on by the organization itself. In this regard, the Act, through the “Disbursement Quota”, which is also defined in subsection 149.1(1) of the Act, recognizes that a charity will, within limits, incur administrative costs, including the costs of making and monitoring investments that are of a passive nature. It is a question of fact whether the relationship between the charitable organization and the subsidiary corporation is suggestive of activities that are other than passive in nature.
We trust that our comments are of assistance to you.
Terry Young, CA
for Division Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Legislation Branch
Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca He can be contacted at or at 416-361-1982.
This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.