CRA recently released a letter which discussed various tax implications with respect to the sale of a clubhouse and dining facility being used by the members of a non-profit organization, specifically, whether the capital gain resulting from the sale of the clubhouse would be taxable, and whether the non-profit would have to submit income tax returns or information returns.
CRA had the following comments:
To the extent that the XXXXXXXXXX Chapter is a 149(1)(l) entity and that its clubhouse is used exclusively for and directly in the course of providing dining, recreational or sporting facilities for its members, any capital gain resulting from the sale of the clubhouse would likely be exempt. This would not be altered by reason of the occasional rental of the clubhouse for special functions. In addition, the entity may distribute to its members the capital gain resulting from such a sale without affecting its eligibility for exemption under paragraph 149(1)(l).
Since the XXXXXXXXXX Chapter is an unincorporated entity, it would not be required to file a T2 Corporation Income Tax Return. It would be required to file an NPO Information Return (Form T1044) for a particular taxation year if the conditions of subsection 149(12) are met. From the description you have provided, this seems unlikely to be the case. Moreover, if the XXXXXXXXXX Chapter does not receive any income from property, and if the clubhouse was used exclusively in the provision of dining, recreational or sporting facilities for its members, there will be no tax payable by the deemed trust on the sale of the clubhouse and a T3 Trust Income Tax and Information Return would not be required. Thus, depending on the circumstances, it could be that the XXXXXXXXXX Chapter may not be required to file any forms or returns for a particular taxation year.
If the Association is a 149(1)(l) entity, and has never owned any assets or received any income of its own, it would not likely be required to file any income tax forms or returns.
Here is a copy of the full CRA 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.