26 April 1994 External T.I. 9333965 - CHARITIES MUST BE REGISTERED IN ORDER TO TAX EXEMPT

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.

Principal Issues:

Enquired to know why unregistered charities must be registered whereas a non-profit organization does not in order to be exempt from tax

Position TAKEN:

If a charity does not register it could be subject to tax if its income is sufficient

Reasons FOR POSITION TAKEN:

The policy intent of this requirement, is stated in the May 25, 1976 Budget Speech tabled in the House of Commons by the (then) Minister of Finance, The Honourable Donald S. Macdonald where at pages 29-30 on the subject of "Charities", he states: "Under the proposed legislation, all charities will have to be registered in order to retain their tax-free status.". On page 7 of Budget Paper D entitled "Charities under the Income Tax Act", which was tabled with the above Budget Speech, it is stated: "The legislation will require all charities to register with Revenue Canada, whether or not they wish to issue receipts, in order to obtain tax-free status. This status will be lost upon deregistration.".

IT-496 also referred to in respect to non-profit organization

933396
XXXXXXXXXX A.W. Larochelle

Attention: XXXXXXXXXX

Dear Sirs:

Re: Paragraph 149(1)(f) of the Income Tax Act (the "Act")

We are writing in reply to your letter of November 10, 1993 in which you request a technical interpretation of the interaction of paragraphs 149(1)(f), 149(1)(l) and subsection 149.1(1) of the Income Tax Act in the hypothetical circumstances set out below. We regret the delay in providing a response.

Unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").

A non-profit organization qualifies as a charity within the meaning of paragraph 149.1(1)(d) of the Act (it does not matter for present purposes whether it is a charitable organization or a charitable foundation). The organization has not applied to the Minister of National Revenue for registration as a charity.

You ask if the organization would be taxable based on a consideration of the interaction of paragraphs 149(1)(f) and 149(1)(l) of the Act.

You point out that pursuant to paragraph 149(1)(1) of the Act, non-profit organizations are exempt from tax under the Act. Pursuant to paragraph 149(1)(f) of the Act, registered charities are exempt from tax under the Act. However, no specific provision of section 149 of the Act exempts a charity that is not a registered charity from tax under the Act.

Our Comments:

In order to be exempt from income tax under paragraph 149(1)(l) of the Act, a non-profit organization must, among other things, be "a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1)...". This requirement was added effective for the 1977 and subsequent taxation years. It was introduced in order to require all charities to register with Revenue Canada. We would refer you to Interpretation Bulletin IT-496 and Special Release thereto dated June 16, 1989 and, in particular, to paragraphs 2, 3 and 4.

With respect to your comments concerning the policy intent of this requirement, we would refer you to the May 25, 1976 Budget Speech tabled in the House of Commons by the (then) Minister of Finance, The Honourable Donald S. Macdonald where at pages 29-30 on the subject of "Charities", he states: "Under the proposed legislation, all charities will have to be registered in order to retain their tax-free status.". On page 7 of Budget Paper D entitled "Charities under the Income Tax Act", which was tabled with the above Budget Speech, it is stated: "The legislation will require all charities to register with Revenue Canada, whether or not they wish to issue receipts, in order to obtain tax-free status. This status will be lost upon deregistration.".

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch