Non-Profits that are not registered charities

February 27, 2013

CRA View - Qualifying as a non-profit

CRA recently released a letter that discussed whether an entity that operates a private high school for the purposes of earning profit qualifies as a non-profit organization. CRA held that the Academy was not operating exclusively for a purpose other than profit. They stated, “Where an entity realizes significant profits and accumulates surplus funds in excess of its current needs or where it engages in a trade or business that is not directly attributable to, or connected with, pursuing the non-profit goals and activities of the entity, we may consider that the entity is not operated exclusively for non-profit purposes.” CRA also provided a brief summary of the characteristics that might indicate an activity is a ‘trade or business”.

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February 27, 2013

CRA View - NPO and Community Contribution Companies

CRA recently issued a letter on whether an NPO will jeopardize its exemption from tax where it incorporates a Community Contribution Company (C3) to carry on for-profit activities. The CRA took the position that, “where an NPO incorporates a C3 and holds the shares of a taxable C3 subsidiary, this will not, in itself, cause the organization to lose its exemption under paragraph 149(1)(l) or the Act”.

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January 21, 2013

CRA letter on qualifying as an NPO when providing excess income to members

The CRA provided its view on whether a non-profit organization meets the requirements of paragraph 149(1)(l) of the Income Tax Act. CRA found that the organization was not operating for a purpose other than profit and income was being made available to its members, so it did not meet the requirements under the ITA. In this case, the corporation had a large amount of excess income and was using that income for purposes unrelated to the organization’s non-profit purposes (such as providing loans to members or shareholders and long-term investments). A not-for-profit organization under paragraph 149(1)(l) can earn a profit but it must be incidental and arise from activities connected to its non-profit objectives. Also, an organization that retains excess funds in order to invest them and earn income is not considered to be operating exclusively for a purpose other than profit.

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January 21, 2013

CRA letter on qualifying as an NPO when excess funds available to purchase and finance a taxable org

Here is a recent letter from CRA dealing with whether a non-profit organization meets the requirements of paragraph 149(1)(l) of the Income Tax Act. In this case, the organization purchased and financed a taxable organization, and it appeared that there was a consistent amount of excess revenues in comparison to expenditures in some years. This suggests there may be a profit purpose. CRA found that the organization was not organized and operating for a purpose other than profit so it did not meet the requirements of paragraph 149(1)(l) of the ITA.

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January 21, 2013

CRA letter on payment plans for membership fees for dining, recreational or sporting facilities

Here is a CRA letter on payment plans in respect of membership fees for dining, recreational or sporting facilities

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December 23, 2012

Toronto Star reports that ‘sponsor withdraws from Islamic event Trudeau to attend’

The Toronto Star recently covered a conference in which Justin Trudeau was speaking.  One of the sponsors of the conference was IRFAN, a group that has lost its charitable status due to allegations that it was involved with directly or indirectly providing support to HAMAS, which is a listed terrorist organization   I think that it is important to read the almost 200 pages of CRA letters and documentation before coming to any quick conclusions.

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December 15, 2012

CRA letter on Payments to Members

CRA recently released a letter dealing with whether an organization under section 149(1)(l) of the Income Tax Act can pay surplus out to its members. In this case, a non-profit organization was providing internet services to its members.

 

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December 09, 2012

CRA letter on whether communal corp. is tax exempt under 149(1)(k) of the ITA

Recently CRA released a letter dealing with whether a communal corporation qualified for tax exemption pursuant to section 149(1)(k) of the Income Tax Act. This provision provides an exemption from income if a person is a ‘labour organization or society or a benevolent or fraternal benefit society or order.’

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November 12, 2012

Trade Associations must guard against anti-competitive practices and create culture of compliance

Some interesting comments from by John Pecman, Interim Commissioner of Competition at the Canadian Competition Bureau.  They deal with non-profits and the importance of compliance and avoiding anti-competitive behaviour.

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October 02, 2012

How many transitions from the CCA to the CNCA have occurred?

We know that there are about 19,000 Federal corporations under the Canada Corporations Act that will need to continue under the new CNCA by October 17, 2014.  We are approaching one year since the CNCA was brought in.  Non-profits only have 2 more years to make the transition.  So how many have made the transition?  According to a note from Coleen Kirby at Industry Canada today it is 350 CCA non-profits!  No doubt the pace will improve.  It had better or a large number of Federal non-profit corporations will potentially be dissolved.  We have done a number of Federal continuances and are working on about 25 more.  We are finding it is hard to keep up with the volume.

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September 27, 2012

Should Ontario non-profits be worrying about the Ontario Not-for-Profit Corporations Act (ONCA)?

In this article we discuss “Should Ontario non-profits or charities be worrying about the Ontario Not-for-Profit Corporations Act (ONCA)?”  The short answer is: probably not.

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September 03, 2012

Strengthening Canada’s Anti-Terrorist Financing Regime and its effect on Canadian charities

Recently the Department of Finance requested submissions on “Strengthening Canada’s AML and Anti-Terrorist Financing Regime”.  I sent in a submission that focussed specifically on the vulnerabilities of charities.

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September 01, 2012

CRA Non-Profit Organization Risk Identification Project - Questions and answers

The CRA has recently posted some questions and answers on the Non-Profit Organization Risk Identification Project, which reviews non-profit organizations that are not Canadian registered charities.

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August 13, 2012

CRA’s Non-Profit Organization Risk Identification Project

CRA recently put out a short press release on its Non-Profit Organization Risk Identification Project.  This project applies to non-profits who are not registered charities under the Income Tax Act.  CRA is looking at whether these non-profits are acting within the rules governing non-profits.  In some cases some non-profits have received education letters from the CRA.  Unfortunately, CRA is not allowed to identify which organizations are non-profits and we understand there are about 80,000 - 100,000 of them.  I have made submissions to the Finance Committee that s. 241 of the Income Tax Act should be amended to allow CRA to disclose certain basic information about non-profits (as it can do with registered charities).

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March 08, 2012

Blumbergs Submission to Finance on AML and Anti-Terrorism Provisions affecting Canadian charities

January 31, 2012

Blumbergs submission on the importance of transparency to the charity and non-profit sector

Here is a copy of my submission to the House of Commons Standing Committee on Finance on Motion 559 dealing with transparency.

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November 18, 2011

Another CRA non-profit letter on Hall Charities Association and whether non-profit

The CRA has just released another letter on the issue of whether a non-profit that is not a registered charity qualifies as a non-profit as opposed to being a for-profit taxable entity.  This letter covers “Does a Hall Charities Association meet the requirements of paragraph 149(1)(l) of the Act?”
CRA concludes that it might or might not depending on the facts and that more information is required to make such a determination.

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August 10, 2011

CRA letter on whether cooperative is tax exempt 149(1)(l) of the Act

June 16, 2011

Another CRA letter on why particular association does not qualify for tax exemption as NPO

Another CRA letter on why particular association does not qualify for the tax exemption contained in paragraph 149(1)(l) of the Act because “The Association is operating a retail operation with the intention of earning a profit.”

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May 04, 2011

CRA letter on payments by non-profits to members and students and how it may affect NPO status

May 04, 2011

CRA letter confirming that orgs that are unregistered charities do not qualify for the tax exemption

Here is a quite a helpful recent CRA letter confirming that orgs that are unregistered charities do not qualify for the tax exemption provided by paragraph 149(1)(l) as NPOs.  There are big differences between non-profits and registered charities. People are sometimes confused about how the Income Tax Act deals with organizations that are “charities” but they are not registered charities under the Income Tax Act.

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November 25, 2010

New T1044 Form - Non-Profit Organization (NPO) Information Return and Guide for Canadian non-profits

The CRA has revised its T4117 Income Tax Guide to the Non-Profit Organization (NPO) Information Return and the T1044 Form - Non-Profit Organization (NPO) Information Return.  If an organization is a registered charity under the Income Tax Act they would not have to complete the form.

 

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September 07, 2010

CRA letter on charity with separate non-profit selling in kind gifts at cost

Here is a CRA letter covering whether a charity that sets up a separate non-profit to sell in kind gifts at cost that the charity received and receipted would be considered to be organized and operated as a 149(1)(l) entityCRA_letter_on_charity_with_separate_non-profit_selling_in_kind_gifts_at_cost.pdf

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August 29, 2010

CRA letter on Canadian unincorporated associations and who should pay tax if no longer exempt

Here is a CRA letter on Canadian unincorporated associations and who should pay tax if no longer meeting requirements for tax exemption.

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June 16, 2010

CRA letter on whether provincial non-profit corporation necessarily tax exempt under ITA

In this letter CRA discusses “Will a corporation that is being incorporated under provincial non-profit legislation be tax-exempt under paragraph 149(1)(l) of the ITA?”  CRA notes “Paragraph 149(1)(l) of the Act (set out below), provides an exemption from tax for organizations that meet certain criteria.  The term “non-profit organization” does not have a specific meaning for federal income tax purposes; the Act does not define or use the term “non-profit organization”.  However, we understand that it is common to refer to organizations qualifying for this tax exemption as “non-profit organizations”.  Unfortunately, this can lead to confusion, as it means that an organization can be incorporated by a federal or provincial statute that uses the term “non-profit organization” (or something similar), but still not qualify for the tax exemption.  In other words, the method of creating the organization does not affect whether the organization qualifies for the tax exemption.  The tax exemption only applies if all the required conditions of paragraph 149(1)(l) are met, no matter how the organization is otherwise described or how it is set up.

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Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

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.

mark@blumbergs.ca
416.361.1982
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