Can not-for-profit organizations run a business?

10 mars 2022 | Melissa Timbres

( Disponible en anglais seulement )

One matter that comes up from time to time, and with increasing frequency in the past few years in response to a decrease in available funding, is the extent to which, as a means to generate revenue, non-profit organizations (“NPOs”) are able to engage in supplemental business or commercial activities that are not directly tied to the core purposes of the organization. These types of business or commercial activities should be considered carefully by an NPO prior to their undertaking as they can be problematic for the NPO’s tax exempt status.

While trite to say, NPOs are not created and organized for the purposes of making a profit, unlike for-profit organizations or entities. Depending upon the enabling legislation and constating documents of the NPO, it may be that the organization is not directly prohibited from carrying on such supplementary business or commercial activities, so long as those activities, and any profits the NPO earns through such activities, are re-invested into the organization and used in furtherance of the NPO’s purposes or objects, and the profits are not paid out to members.  However, a business or commercial activity that is not related to the purposes or objects of the NPO could run afoul of the rules applicable to NPOs under the Income Tax Act (Canada) (“ITA”) as interpreted by the Canada Revenue Agency, which will be discussed briefly below. This could be the case even if the profits earned from such business or commercial activities were invested back into the organization.

Canada Revenue Agency (CRA) implications

The concern any NPO will want to be mindful of (and seek guidance from its advisors) is with respect to the NPO’s tax status when undertaking such business or commercial activities. Briefly, the main issue will be whether the NPO can conduct such ancillary or supplemental activities and remain a tax exempt NPO under section 149(1)(l) of the ITA.

The rules for NPOs in this respect are quite restrictive and are summarized as follows:

  • Section 149(1)(l) of the ITA requires NPOs to be organized and operated exclusively for non-profit purposes;
  • Commercial or business-like activities (i.e. profit-generating activities) may be carried out by a NPO that is created and organized for a non-profit purpose without necessarily jeopardizing its tax exempt status under section 149(1)(l) of the ITA, as the CRA has recognized that a NPO may earn incidental profits to fund non-profit initiatives and remain exempt from tax under paragraph 149(1)(l);
  • However, currently the CRA’s general position is that a NPO is not permitted to intentionally earn a profit, even if the profit-making activity is secondary to its non-profit purposes and is used to fund non-profit activities; and
  • The realization of significant profits or the accumulation of unreasonable reserves can be evidence of an unstated profit purpose of the NPO.

What will be critical to determine, in light of the foregoing, is how the business or commercial activities fit within such parameters.  Depending upon the intention of the NPO, it could result in such business activities throwing the NPO offside s. 149(1)(l) of the ITA, so it may no longer be able to claim a tax exemption.

The ITA provides that in the event an organization is found not to have been operating as an NPO in compliance with paragraph 149(1)(l), the NPO is deemed to begin a new tax year at that time and is to be taxable on a go-forward basis.

There is further risk to the NPO that CRA re-assess the organization for unpaid taxes. This is because, on audit, in the event that CRA concludes that the NPO filed a tax return containing a misrepresentation (i.e., that the organization was tax exempt when this was not the case), then CRA can seek to assess the NPO for unpaid tax for an unlimited number of years. All unpaid taxes may then be subject to interest and additional penalties.

To learn more how we may be able to assist you with an analysis of your NPO’s activities and how a desired supplemental business or commercial activity may impact your organization, or how we can assist you with a potential solution, please contact a member of our Social Impact Group.

Avis de non-responsabilité

Cette publication est fournie à titre informatif uniquement. Elle peut contenir des éléments provenant d'autres sources et nous ne garantissons pas son exactitude. Cette publication n'est ni un avis ni un conseil juridique.

Miller Thomson S.E.N.C.R.L., s.r.l. utilise vos coordonnées dans le but de vous envoyer des communications électroniques portant sur des questions juridiques, des séminaires ou des événements susceptibles de vous intéresser. Si vous avez des questions concernant nos pratiques d'information ou nos obligations en vertu de la Loi canadienne anti-pourriel, veuillez faire parvenir un courriel à

© 2023 Miller Thomson S.E.N.C.R.L., s.r.l. Cette publication peut être reproduite et distribuée intégralement sous réserve qu'aucune modification n'y soit apportée, que ce soit dans sa forme ou son contenu. Toute autre forme de reproduction ou de distribution nécessite le consentement écrit préalable de Miller Thomson S.E.N.C.R.L., s.r.l. qui peut être obtenu en faisant parvenir un courriel à