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.’

CRA provided the following analysis:

“The term “benevolent or fraternal benefit society or order” is not defined in the Act; therefore, we must consider the common, ordinary meaning. Black’s Law Dictionary defines a “fraternal benefit society” as “A voluntary organization or society created for its members’ mutual aid and benefit rather than for profit, and whose members have a common and worthy cause, objective, or interest. These associations usually have a lodge system, a governing body, rituals, and a benefits system for their members.”

In CRA’s view, the corporation did not meet the description provided above. Their reasoning was as follows:

“….the corporation does not meet this description. The Corporation appears to be organized and operated to group together its members to live, and to pay for all of the members’ living expenses. In our view, the members have not banded together based on a common cause for their mutual aid and benefit, nor is the Corporation providing a benefits system for the members. Because the members give up all of their major assets to join the group and contribute all of their annual income to the Corporation, the provision of accommodation and payment of the members’ living expenses by the Corporation is a necessity rather than a benefit.”