23 January 2002 External T.I. 2001-0107065 - NON-PROFIT ORGANIZATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Is an entity which enters into insurance contracts precluded from qualifying as a non-profit organization pursuant to paragraph 149(1)(l) by virtue of subsection 138(1)?

Position: It is a question of fact

Reasons:

An entity organized and operated exclusively for non-profit purposes which enters into insurance contracts on a cost recovery basis could qualify as a non-profit organization for purposes of paragraph 149(1)(l) if the other requirements of that provision are satisfied

XXXXXXXXXX 							2001-010706

January 23, 2002

Dear XXXXXXXXXX:

Re: Subsection 138(1) and Paragraph 149(1)(l) of the Income Tax Act ("Act")

This is in reply to your letter of October 19, 2001 wherein you requested our interpretation of the interaction of subsection 138(1) and paragraph 149(1)(l) of the Act.

Whether or not a particular entity is a non-profit organization to which paragraph 149(1)(l) of the Act applies is a question of fact. Therefore it must be established that the entity is organized and operated exclusively for non-profit purposes. This is an ongoing test. As indicated in paragraph 9 of Interpretation Bulletin IT-496 where an association's aims are two-fold, to earn profits and to carry out its non-profit purposes, the "operated exclusively" test in paragraph 149(1)(l) would not be met.

In paragraph 7 of Interpretation Bulletin IT-496 we mention some of the characteristics which might be indicative that a particular activity is a trade or business. They include among others that an activity will be considered to be a trade or business if it is operated in a normal commercial manner; if it is operated on a profit basis rather than a cost recovery basis; and if it is operated in competition with taxable entities carrying on the same trade or business.

We are of the view that where an entity which has been organized exclusively for non-profit purposes enters into insurance contracts on a cost recovery basis but otherwise operates exclusively for non-profit purposes such an entity could qualify as a non-profit organization pursuant to paragraph 149(1)(l) of the Act provided the other requirements of that provision are satisfied. In our view subsection 138(1) of the Act would not in and of itself preclude such a corporation from qualifying as being exempt under paragraph 149(1)(l) of the Act.

We trust that the above comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate