NPO Issues – Whose Income Is It?

February 28, 2012 | Andrew Valentine

As reported previously in this Newsletter, non-profit organizations have been subject to an ongoing CRA audit project over the past two and a half years.  The audit project is reviewing the tax compliance of a broad range of NPOs, in particular with a view to determining whether organizations that have filed as tax exempt NPOs do in fact qualify for this tax exemption under paragraph 149(1)(l) of the Income Tax Act.  At the same time, CRA has released a large number of interpretive documents addressing the requirements for the NPO tax exemption, and has taken positions that have thrown into question the bases on which NPOs have operated for decades.  We have addressed many of these new positions, and their implications for NPOs, in previous issues of this Newsletter (see June 2011December 2009)

One of the requirements for NPO status is that none of the income of the organization can be payable to or otherwise available for the benefit of any shareholder, proprietor or member of the organization. CRA has generally taken the position that to the extent that an NPO earns income from non-members which is either distributed directly to the members, or is used to improve member benefits or reduce membership fees, thiswill be considered making the income of the organization available to the members.

An example of this occurs when a condominium corporation – which would typically file as tax-exempt under paragraph 149(1)(l) – rents out an unused suite to non-members and uses the surplus from this activity to reduce condominium fees of the unitholders (i.e., the members of the condominium corporation).  CRA has indicated that this may jeopardize the NPO status of a corporation, on the basis that it constitutes making the income of the corporation available for the benefit of the members.

In some circumstances, however, income that might appear to constitute income of the corporation will in fact be considered income of the members. This has important implications for the NPO exemption.

In a technical interpretation released in October 2011, CRA provided an example of where this might occur.  The document considered whether a bingo hall association would qualify as an NPO.  Charities in Ontario seeking to fundraise through bingo halls are required to be members of a hall association, which is an organization operated for the purpose of administering charitable fundraising through bingos.  Such hall associations are required to maintain lottery trust accounts to hold revenue earned from bingo activities and to pay certain amounts to the charity members of the association.  CRA addressed the issue of the whether such an association, by virtue of earning revenue from the public (i.e., the bingo players) and distributing this to its members, would be offside the NPO tax exemption.

CRA stated that this question would turn largely on the question of whether the bingo income is properly the income of the association or the income of the members.  It stated, without stating a final conclusion, that several factors in the case of hall associations suggest that the bingo income is fact income of the members and not the organization.  These factors were:

  • Ontario requires that the members of the association obtain necessary provincial licensing to operate the bingos, rather than the association itself, suggesting that it is the members and not the association who are responsible for the bingos;
  • hall associations are required to maintain trust accounts to hold revenues that will be paid to the members, which suggests that the revenue is not that of the organization, but rather that of the members which the organization receives and holds on their behalf; and
  • hall associations appear to act as agents or managers for the benefit of their members.

CRA stated that if the income is properly income of the members and not of the organization, then the payment of revenues to the members would not constitute making the income of the organization available to the members. If, however, such income is considered income of the association, then the association would not qualify as tax exempt.

In a technical interpretation released in July 2011, CRA took a similar position where condominium corporations rent out common areas of the condominium property (typically the roof) to telecommunications companies to allow the installation of cellular phone antennae and use this income to reduce condominium fees.  Because most condominium legislation provides that common areas are the property of the members, CRA has taken the position that telecommunications antennae revenue is properly that of the members and not the corporation.  Thus, unlike with the rental of unused suites (which are not owned by the unitholders), the use of rental revenue from common areas to reduce condominium fees will not constitute the making of income available to the members. CRA noted that it would likely be necessary to issue appropriate T4A slips to the members in respect of this income.

These technical interpretations indicate that organizations that earn income from non-members will need to consider whether this income is properly that of the corporation or the members.  The answer to this question may determine whether the organization can continue earning the revenue without affecting its NPO status, or whether the earning of income must cease or be re-structured lest the organization’s NPO status be jeopardized.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at

© 2022 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting