CRA has recently provided guidance on one aspect of the requirements for tax-exempt status as a non-profit organization (“NPO”) under the Income Tax Act. Specifically, CRA commented on the requirement that, in order to qualify as an NPO, an organization must be “in the opinion of the Minister, not a charity within the meaning assigned by section 149.1(1)”. It is important that organizations that wish to qualify as NPOs take account of this requirement, as a failure to do so can jeopardize the organization’s tax exempt status.
CRA’s comments were provided during the Round Table on the Federal Taxation APFF 2009 Conference. CRA was asked about the requirement that, in order to qualify as an NPO, an organization cannot be a charity in the opinion of CRA. CRA was asked what it requires with respect to this element of the definition of NPO.
CRA confirmed that an organization that meets the definition of a charity can only enjoy tax-exempt status by obtaining registration as a charity. In other words, if an organization would qualify as a charity – even if it is not registered – it cannot qualify as an NPO. Such an organization would simply be an unregistered charity and may as such be taxable.
CRA stated that the question of whether an organization is a charity comes down to whether the organization is organized and operated exclusively for charitable purposes. The four categories of charitable purpose generally include: (1) relief of poverty; (2) advancement of education; (3) advancement of religion; and (4) purposes beneficial to the community recognized at law. An organization that has objects and activities which fall exclusively under one or more of these categories will generally qualify as a charity within the meaning of 149.1(1).
CRA noted that although the tax exemption for NPOs in the Income Tax Act refers to “the opinion of the Minister”, this does not require that an organization obtain an opinion from CRA regarding its status as a charity. CRA noted that the question of whether an organization is a charity is a question of fact. Thus, an opinion from CRA that the organization is not a charity would be of limited value, as CRA noted it would not mean that the organization was not previously or will not subsequently be a charity. Furthermore, the denial of charitable registration does not guarantee that an organization is not a charity within the meaning of 149.1(1). For example, as CRA stated, a foreign charity cannot be registered under the Income Tax Act but may nonetheless be, in the opinion of the Minister, a charity within the meaning of 149.1(1).
With respect to the advance rulings available regarding NPO status, CRA separated its view into two parts: it indicated that it is willing to comment on the organization of an NPO but not on whether it meets all requirements for NPO status. CRA’s view is that in the course of an advance tax ruling request, the Income Tax Rulings Directorate may issue a ruling to the effect that the taxpayer is organized in such a manner so as to be able to benefit from the tax exemption for NPOs.
However, when it comes to ruling on whether the taxpayer operated in a manner which satisfies the conditions for NPO status, CRA’s position is that it will not issue a ruling on this question because it is a question of fact which can only be resolved by considering all the activities of the taxpayer during the year in question. This determination can only be made at the end of the year.
CRA invites those who wish to confirm their NPO status in regards to its activities to contact their local tax services office. The CRA may likely refer people to their guidelines as the CRA is not likely to issue any ruling on the operational side before the end of the NPO’s fiscal year.
Miller Thomson’s Charities and Not-for-Profit lawyers can advise organizations on their status as NPOs or as charities.