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.
Here is a copy of the letter:
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.