Words and Phrases - "exclusively"
13 May 2024 External T.I. 2022-0944461E5 - NPO - Residential housing co-operative
Would a residential housing co-operative (Co-op) continue to qualify under s.149(1)(l) if it earned profits from renting its common areas to third-parties (e.g., film companies) – and would the answer change if it did so through a wholly-owned taxable subsidiary? After citing Tourbec for the proposition that “the word exclusively must be given its full effect,” CRA went on to note that, however, “a tax-exempt NPO can earn a profit, as long as the profit is incidental,” i.e., “not significant and arises from activities directly connected to the organization’s not-for-profit objectives.” For example it was acceptable that the Co-op earned “modest revenues from providing laundry machines for use by residents of the Co-op.”
In contrast, “the anticipated profits from renting out the Co-op’s common areas to third parties … [were expected] to be considerable enough to assist the Co-op in paying for major repairs, ongoing maintenance of the building, maintaining a reserve fund, and lowering monthly maintenance fees for the residents.” Accordingly, such activity would disqualify it under s. 149(1)(l). If it carried on this activity through a subsidiary, the expected dividend income would have the same effect.
Tourbec (1979) Inc. v. Minister of National Revenue, [1988] 2 CTC 2071, 88 DTC 1442
In finding that the appellant, which was incorporated as a non-profit company, but which “was carrying on a business concern much the same as any other travel agency” and from which “it made quite considerable profits” did not qualify under s. 149(1)(l), Couture DJ first quoted the statement in British Launderers Research Association v. Central Middlesex Assessment Committee and Hendon Rating Authority, [1949] 1 All E.R. 21 that:
The word “exclusively” must be given its full effect. It is not sufficient that the society should be instituted "mainly" or “primarily” or “chiefly” for the purposes of science, literature, or the fine arts, it must be instituted "exclusively" for those purposes.
After noting that the appellant made some donations, he concluded:
As in the Woodward's case, the appellant's philanthropic purpose or object could not have been achieved unless it had carried on its business which was a commercial operation for profit.