Canada has roughly thirty thousand organisations claiming a tax exemption that nobody applied for, nobody granted, and nobody has confirmed. When CRA looked at a sample of them, its conclusion was not encouraging.
Key Takeaway
Paragraph 149(1)(l) of the Income Tax Act exempts a club, society or association that is not a charity and that is organised and operated exclusively for social welfare, civic improvement, pleasure or recreation, or for any other purpose except profit, with no part of its income payable to or available for the personal benefit of a proprietor, member or shareholder. CRA reports approximately 30,000 organisations claiming the exemption, and reviewed 1,337 randomly selected files from 2009 over a three-year period. It concluded that a significant portion of incorporated organisations would fail to meet at least one of the requirements. Its findings included organisations that were actually charities, organisations maintaining disproportionately large capital or operating reserves that could not be justified as incidental, and governing documents explicitly indicating purposes that were not exclusively non-profit. Twenty-six percent of those reviewed identified themselves as an "Other" type.
A Note On Currency
Everything here is stated as verified in August 2026 and requires confirmation before reliance. The project findings described below relate to reviews conducted from 2009 over three years, and the commentary reporting them dates from 2013 and 2014.
We report those findings as historical. They are the most substantial public information available about compliance in this sector, and they describe a population as it was more than a decade ago.
We have also deliberately not stated the filing thresholds for the annual information return, because the source available to us was truncated at that point and a wrong threshold would cause an organisation to file or not file incorrectly. Those must be taken from CRA's own guidance.
This is not tax advice. Whether an organisation qualifies is a question of fact turning on its documents and its actual conduct, and an organisation with any doubt should obtain advice rather than continue asserting a position by default.
A Status Nobody Grants
The structural feature that distinguishes this regime from the charities regime examined earlier in this series. This section is our own analysis.
A registered charity applies to CRA, is assessed, and receives registration. Its status is conferred, it appears on a public list, and it can be revoked by a decision the organisation can see coming and respond to.
A non-profit organisation under this paragraph has none of that. There is no application, no assessment, no registration number and no list.
The organisation simply concludes that it meets the statutory description and files on that basis. If it is right, it is exempt. If it is wrong, it was never exempt, and it does not find out until someone asks.
Three consequences follow and each shapes the rest of this article.
There is no moment of validation. Nobody in the organisation's history has ever been told the position is correct, so a long record of filing on this basis is evidence of consistency rather than of entitlement.
The status is continuously re-tested. Because the test is about how the organisation is operated, an entity that qualified when founded can cease to qualify through gradual change without any decision being taken.
And there is no equivalent of revocation. Rather than losing a status prospectively, an organisation found not to meet the description is treated as not having met it, which is the subject of a section below.
The Provision
The statutory text, quoted as reproduced in commentary on CRA's own report.
The paragraph applies to 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) and that was organised and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder, unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada[1].
Commentary summarises the elements as requiring that the organisation be organised and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit, and that it must not pay or otherwise make available any part of its income for the personal benefit of any proprietor, member or shareholder[2][3].
Two phrases deserve isolating before anything else, and this is our own emphasis.
In the opinion of the Minister qualifies the charity exclusion. Whether an organisation is a charity for this purpose is not settled by whether it has sought registration.
And exclusively governs the purpose test. The provision does not ask whether the organisation is mainly or predominantly non-profit; it asks whether it is exclusively so.
Four Tests, All Of Which Must Hold
The structure, set out usefully in commentary on the project.
It describes the requirements as: that the entity is not a charity; that it is organised exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; that it is in fact operated exclusively for the same purpose for which it was organised or for any other of those purposes; and that it does not distribute or otherwise make available for the personal benefit of a member any of its income, subject to certain narrow exceptions[4].
Another source frames the same requirements as an entity, incorporated or unincorporated, that in CRA's opinion is not a charity, so that an entity organised for charitable aims cannot also and separately qualify as a non-profit organisation; that is organised and operated exclusively for the listed purposes, meaning some purpose other than commercial or financial reasons; and whose income has never been paid to, made payable to or otherwise made available for the personal benefit of any of its members[5].
Note the word never in that last formulation. We report it as the source states it, and it suggests the income test looks across the organisation's history rather than at a single year, which an organisation with a long past should have considered.
The value of the four-part structure, and this is our own observation, is that it tells a board what to examine. Two of the tests concern documents, one concerns conduct, and one concerns money leaving the organisation.
Those are four different enquiries and an organisation can fail any one of them while satisfying the others comfortably.
Organised And Operated
Two words that create two separate tests, and the reason long-standing organisations drift into difficulty.
The provision requires that the organisation be organised and operated exclusively for the qualifying purposes[1], and commentary treats them as distinct requirements, the second asking whether the entity is in fact operated exclusively for the purpose for which it was organised[4].
The distinction matters enormously, and this is our own analysis.
Being organised for a purpose is a question about the founding documents: the articles, the constitution, the objects, the bylaws. It is fixed at a point in time and changes only deliberately.
Being operated for a purpose is a question about what the organisation actually does, now, in the year under review. It changes constantly and without anyone deciding that it should.
A sports club founded to run a league, which over twenty years developed a profitable bar, a facility rental business and a merchandise operation, has not amended a single document. Its organisation test is unchanged and its operation test may have quietly failed.
That drift is the characteristic risk in this sector, and it has a specific feature that makes it hard to see from inside: each individual step was sensible, revenue-positive and approved by a board acting properly.
No one meeting ever decided to become a commercial enterprise. The question is only ever asked in aggregate, and usually by someone external.
The Project
What CRA actually did, and its stated character at the time.
Commentary reports that CRA describes approximately 30,000 organisations currently claiming the exemption, that the term encompasses many different types of organisation, and that starting in 2009 CRA reviewed 1,337 randomly selected files to determine each organisation's compliance with the Act[4]. Another source records that the findings are based on 1,337 reviews performed over a three year period[1].
On the project's nature, commentary from the period records CRA describing it as an information gathering and education initiative that it hoped would provide insights regarding the way non-profit organisations operate under the Act, and stating that the project was then only an information gathering initiative that would not result in reassessments in the short term, except in egregious cases[2][3].
The same commentary observed that the intensified focus on the sector suggested an increased risk that organisations may have their status reviewed[2].
Some scale, from our own calculations. The 1,337 files reviewed represent about 4.5 percent of the stated population, at roughly 446 reviews a year across three years.
By comparison, the charities article in this series reported roughly 182 audit outcomes against approximately 86,000 registered charities, being about 0.21 percent annually. The project rate here was around 1.49 percent a year while it ran, which is roughly seven times that.
We would not over-read that comparison, since a review under an information gathering project is not the same intervention as a charity audit. It nonetheless indicates the level of attention the sector received.
The Finding
The conclusion, which is the reason this article exists.
Commentary reports that CRA concluded that a significant portion of incorporated organisations would fail to meet at least one of the requirements set out in paragraph 149(1)(l) of the Act[4].
Read that carefully, because its terms are precise and its implications are broad.
It concerns incorporated organisations, which is the majority of any substantial entity in this sector.
It says at least one of the requirements, which is all that is needed. The four tests are cumulative, so failing one is failing.
And significant portion is CRA's own characterisation of its own randomly selected sample. This is not an advocacy claim by a party with an interest.
The implication for any individual organisation, and this is our own analysis, is uncomfortable in a specific way.
If a significant portion of a random sample would fail, then a board that has never examined the question cannot reasonably assume it is in the compliant group. The base rate is the relevant starting point, and the base rate is not good.
Three findings behind that conclusion are set out in the sections that follow.
Profit Is Not Prohibited
A correction to the most common misunderstanding in this area, and it runs in the organisation's favour.
Commentary states the position clearly: the courts have not interpreted paragraph 149(1)(l) so restrictively as to mean an entity cannot earn any profit to qualify for tax-exempt status, and it is well recognised that a non-profit organisation can undertake commercial or business activity to support its non-profit goals, and not just to enrich its members or proprietors[5].
It also gives the working definition: for income tax purposes, profit is widely accepted to mean the difference between receipts in a period and the expenditures laid out to earn those receipts[5].
Commentary on the project puts the same point from CRA's side, noting there are certain instances where CRA will permit the generation of profit by an organisation, on a condition addressed in the next section[4].
Two consequences follow, and this is our own analysis.
A board that has been anxiously avoiding any surplus has been managing the wrong risk. Running at breakeven is neither required nor, in most cases, prudent, and reserves have legitimate purposes including capital replacement and financial resilience.
And the phrase to support its non-profit goals is where the real test sits. Commercial activity is permissible as a means; the question is always what it is a means to.
That is why the analysis cannot be conducted by looking at the income statement alone. A surplus tells you nothing about purpose.
The Word That Does The Work
The condition on which profit is permitted, and the boundary an organisation has to stay inside.
Commentary on the project states that CRA will permit the generation of profit on the condition that such profit is incidental to the non-profit activities of the organisation[4].
Another source sets out where profit becomes a problem: where it is more than incidental, or where that profit is earned from an activity or business that is not directly attributable to the entity's non-profit activities or purpose[5].
Note that those are two distinct failure conditions, which this is our own reading.
The quantum condition asks whether the profit is more than incidental, which is a question of scale relative to the organisation's activities.
The attribution condition asks whether the profit came from something directly attributable to the non-profit purpose, which is a question of source rather than size.
An organisation can fail the second while passing the first. A modest profit from a wholly unrelated commercial venture is small in quantum and unattributable in source.
Applied to real organisations, the attribution question is the more useful diagnostic. A curling club's bar revenue is arguably attributable to its recreational purpose. The same club renting its parking lot to a neighbouring office building for weekday commuter parking is generating profit from an activity with no relationship to curling.
Both may be sensible commercial decisions. They sit differently under this test, and a board should know which of its revenue lines are which.
Disproportionately Large Reserves
The specific finding CRA made, and the one most likely to affect a well-run organisation.
Commentary reports that CRA noted, of the organisations reviewed, there were many which maintained disproportionately large capital or operating reserves which could not be justified as incidental to the organisation's activities[4].
That finding deserves careful handling, and this is our own analysis, because it puts prudent governance in tension with tax status.
Every governance guide tells a non-profit board to build reserves. Auditors comment adversely on organisations with insufficient working capital. Funders assess financial resilience. A board accumulating a reserve is doing what it has been advised to do.
Yet an accumulated surplus with no articulated purpose is precisely what the finding describes: capital that cannot be justified as incidental to the organisation's activities.
The distinguishing feature is not the size of the reserve. It is whether it is attached to a purpose.
A reserve of a stated amount, held against an identified facility replacement, an approved capital plan, a known future obligation or a documented operating contingency policy, is justified by reference to the organisation's activities.
The same amount held because surpluses accumulated and nobody spent them is not.
The remedy is therefore documentary and costs nothing: adopt a written reserve policy, state what each reserve is for, quantify the target, and record it in the minutes. That converts an unexplained balance into a planned one, and it should be done before anyone asks rather than in response to a question.
There Is No Bright Line
An honest statement of the difficulty, which an organisation should understand before seeking certainty it cannot get.
Commentary states that determining whether an entity operates exclusively for, and in accordance with, a purpose other than profit is nuanced, that there is no single bright-line test to answer the question, and that it remains a question of fact in each case[5].
That has two consequences and they pull against each other.
The unfavourable one is that an organisation cannot establish compliance by satisfying a numeric threshold. There is no percentage of revenue, ratio of reserves to expenditure, or level of surplus that guarantees the position.
The favourable one, and this is our own reading, is that the absence of a bright line cuts both ways. CRA equally cannot establish non-compliance by pointing to a ratio, and an organisation with a coherent explanation of its purposes, its activities and its reserves is arguing on the same terrain the Agency is.
That is why the recommendations in this article are consistently documentary rather than numerical. Where the test is a question of fact, the organisation that has recorded the relevant facts contemporaneously is in a materially stronger position than one reconstructing them.
Commentary also notes that a CRA document released around the time of the project suggested a narrower approach to status than the Agency had previously espoused[2][3]. We report that as commentary describing an interpretive document we did not access, and it is a reminder that administrative positions in an area without bright lines can move.
The Governing Documents Problem
The finding that is easiest to fix and most often ignored.
Commentary reports that CRA found some organisations maintained governing documents that explicitly indicated that the organisation was organised for purposes that were not exclusively non-profit[4].
That failure is different in kind from the others in this article, and this is our own emphasis.
The reserves finding and the profit finding concern conduct, which is contestable, evolving and open to explanation. This one concerns text, which is fixed and can be read.
An organisation whose articles or objects state a purpose that is not exclusively non-profit fails the organisation test on the face of its own founding document, and no amount of exemplary conduct cures it.
The reasons this happens are mundane rather than sinister. Documents drafted decades ago by general counsel unfamiliar with the exemption. Boilerplate objects clauses giving the entity broad commercial powers. Amalgamations that carried forward the wrong constating documents. Incorporation under a general statute using standard forms.
Broad powers clauses deserve particular attention. There is a difference between a clause permitting the organisation to carry on activities in support of its purposes and one stating a purpose of carrying on business.
The instruction is straightforward and it is the cheapest item in this article: read your own objects. Most boards have never done so, and it is a single afternoon with counsel.
Organisations That Are Actually Charities
The first of CRA's reported findings, which surprises people in both directions.
Commentary reports CRA finding instances where organisations claiming the exemption were actually charities, being either registered charities erroneously filing non-profit returns, or charities at common law which did not qualify for the 149(1)(l) exemption[4].
Commentary on the project report adds that there appear to be a number of charities, some registered and some not, incorrectly filing as entities under this paragraph[1].
The second category is the one worth explaining, and this is our own analysis.
The paragraph excludes an entity that is a charity in the Minister's opinion. Being a charity at common law is a matter of the organisation's purposes, not of whether it applied for registration.
So an organisation pursuing purposes that are charitable in law, which has never sought registration, may be a charity for this purpose and therefore excluded from this exemption, while also not being registered and therefore not exempt as a charity either.
That is a genuinely awkward position: excluded from one exemption for being a charity, and unable to use the other for not being registered.
Organisations in the relief of poverty, advancement of education, advancement of religion and certain community benefit fields should establish which regime they belong in rather than assuming that not having registered settles the question.
The choice between registering as a charity and operating as a non-profit is a substantive one with different obligations, benefits and restrictions, and it should be made deliberately.
Claiming The Wrong Exemption
A finding that is genuinely good news for some organisations.
Commentary on the project report states that many entities do not identify themselves properly when filing, giving as an example that 26 percent of the organisations reviewed listed themselves as an "Other" type. It notes that some cases reviewed were organisations such as housing corporations, boards of trade and chambers of commerce that likely qualify for tax exemption under other paragraphs of subsection 149(1)[1].
If that 26 percent were representative of the population, it would describe roughly 7,800 organisations, on our own calculation from the stated figures.
The practical implication, and this is ours, is that an organisation struggling to fit the non-profit description may be looking at the wrong provision entirely.
Subsection 149(1) contains a series of exemptions for different kinds of entity. Some have their own conditions which may be easier to satisfy, or which accommodate activities that sit awkwardly under the exclusively-non-profit test.
A board of trade, a chamber of commerce, an agricultural organisation, a labour organisation, a housing corporation and a municipality's own entities are each addressed somewhere in the tax system, and not all of them under this paragraph.
So before an organisation attempts to restructure its activities to fit this exemption, it should establish that this is the right exemption to be fitting. That is a question for an advisor and it is cheaper than the alternative.
The Amateur Athletics Exception
A narrow but real exception inside the income test.
The provision requires that no part of the income be payable to or available for the personal benefit of any proprietor, member or shareholder, unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada[1].
Commentary refers more generally to the income test being subject to certain narrow exceptions[4].
Two observations, ours.
The exception addresses a structural feature of organised sport in Canada, where local clubs are members of regional bodies which are members of provincial and national ones. Payments flowing up or down that structure would otherwise be payments to a member.
And the exception is tightly drawn. It requires that the recipient's primary purpose and function be the promotion of amateur athletics in Canada, which is a description that many sporting bodies satisfy and some do not, particularly where professional or commercial elements have grown alongside amateur ones.
An organisation relying on this exception should be able to state which entity the exception applies to and why that entity's primary purpose and function meets the description.
The Return That Is Not A Tax Return
The filing obligation, with a distinction worth understanding.
Commentary describes the non-profit organisation information return as an information return, not a tax return, and calls this an important distinction. Organisations qualifying under the paragraph do not pay income tax on their activities provided they meet the conditions, but CRA still requires certain organisations to report financial and operational information annually. The return is described as helping CRA monitor whether organisations continue to meet the criteria[6].
The same source notes that registered charities file the charity information return rather than this one[6].
We have deliberately not stated the filing thresholds. Our source was truncated where it described them, and an organisation that files unnecessarily or fails to file when required has a problem either way. Take them from CRA's guidance.
Two points, ours.
The return's stated purpose is monitoring continued eligibility, which means it is the principal routine mechanism by which the Agency observes this sector. What an organisation reports on it is the data against which its status is assessed.
And the source notes that where filing is not required, an organisation may still choose to file voluntarily to demonstrate compliance[6]. Whether that is advisable is a judgment for an organisation and its advisor, and it is worth at least considering rather than defaulting.
You Cannot Issue Receipts
A limitation that organisations and their donors get wrong constantly.
Commentary states it plainly: an organisation that is not a registered charity cannot issue tax receipts for donations[6].
This is the practical difference between the two regimes that matters most to the people funding an organisation, and this is our own emphasis.
The exemption under this paragraph relieves the organisation from tax on its own income. It confers nothing on donors.
An amateur sports club, a community association, a professional society or a social club may be entirely tax-exempt and entirely unable to give a supporter anything they can claim.
Three practical consequences follow.
Fundraising materials should not describe contributions in terms implying a tax benefit, and organisations frequently drift into language that does.
A supporter who received a document they believed was a donation receipt from an organisation not entitled to issue one has a problem on their own return, which becomes the organisation's reputational problem.
And an organisation whose funding model genuinely depends on receipting donations is in the wrong regime, which returns to the choice described earlier: register as a charity, with its obligations, or fund the organisation another way.
What Losing It Means
The consequence, described from the structure rather than from a verified mechanism. This section is our own analysis and should be read as such.
Because there is no registration, there is no revocation. An organisation that does not meet the description was not exempt under this paragraph, for the periods in which it did not meet it.
That has a different shape from the charities regime examined earlier in this series, where a status is withdrawn from a date.
The likely consequence of a finding is that the organisation is taxable on its income for the affected years, computed under ordinary principles, with the usual consequences of returns not filed on that basis.
We are not going to state how any particular assessment would be computed, because that depends on the organisation's circumstances and on provisions we have not verified.
What can be said is that an organisation in this position faces a determination about past years rather than a change of status going forward, which is why the drift problem described earlier is serious. The years during which nobody noticed the change are the years at issue.
It also means the remedy is not simply to correct the position prospectively. An organisation that discovers a problem has a question about prior years as well as future ones, and that question should go to an advisor before it goes anywhere near a filing.
What The Auditor Actually Examines
The enquiry in practice, structured by the four tests. This section is our own analysis.
The governing documents. Articles, objects, constitution and bylaws, read against the exclusively-non-profit requirement. This is the fastest test and the one that can be failed on the face of the document.
The revenue breakdown by activity. Which lines are attributable to the stated purposes and which are commercial activity unrelated to them.
Surplus and reserve levels over time, and whether any stated purpose attaches to them.
Payments and benefits to members, directors and related parties, including below-market access to facilities, subsidised services and anything approaching a distribution.
Minutes. Which show what the board understood itself to be doing, and whether commercial expansion was framed as supporting the purposes or as a revenue objective in itself.
Comparison of current activities against founding purposes, which is the operation test.
Whether another exemption fits better, which is a question the organisation should ask before it is asked.
The fourth item deserves emphasis because it is the one organisations least expect. Member benefits do not have to be cash. Preferential rates, free use of facilities and services provided below cost to a subset of members can all raise the income test.
Questions For The Board
Five questions a board can answer at one meeting, offered as our own.
Has anyone on this board read our objects clause, and does it state a purpose that is exclusively non-profit.
Which of our revenue lines are attributable to our stated purposes, and which are not.
What is each of our reserves for, is that written down, and is there a target amount.
Does any member, director or related party receive anything from this organisation that a stranger would not receive on the same terms.
Are we sure this is the right exemption for an organisation like ours, given that a quarter of those reviewed could not even categorise themselves correctly.
None of the five requires expenditure and all five address a finding CRA actually reported.
What Records Survive
The governing documents, read and reviewed, with a note of when they were last examined against the exemption and by whom.
A written reserve policy stating the purpose and target of each reserve, adopted by the board and recorded in the minutes.
A revenue analysis by activity, classifying each line against the organisation's purposes, updated annually.
Minutes recording the rationale for commercial activities, framed by reference to the purposes they support.
A register of member and related party benefits, including non-cash ones.
A record of the exemption analysis itself, being the organisation's own documented conclusion that it meets the four requirements, with the basis. Since nobody else has ever confirmed the position, this is the only such document that exists.
Filed information returns and the working papers behind them.
What To Do
Read your objects clause. CRA found organisations whose governing documents explicitly stated purposes that were not exclusively non-profit, and no conduct cures a document.
Stop treating surplus as the risk. Profit is not prohibited; the tests are whether it is more than incidental and whether it is attributable to the non-profit purpose.
Attach a written purpose to every reserve. CRA's finding was about reserves that could not be justified as incidental, and a reserve with a stated purpose and target is a different object from an accumulated balance.
Classify your revenue by attribution, not by size. A small profit from an unrelated activity fails a different test than a large one from a related activity.
Test operation as well as organisation. The drift from one to the other happens without any decision being taken and is invisible from inside.
Check whether you are a charity at common law. Not having registered does not settle the question, and being one excludes you from this exemption.
Check whether another paragraph fits better. Boards of trade, chambers of commerce and housing corporations were among those CRA identified as likely qualifying elsewhere.
Do not imply a tax benefit to supporters. An organisation that is not a registered charity cannot issue donation receipts, whatever its exemption.
Write down your own conclusion that you qualify. Nobody has ever confirmed it, so the only document establishing that the question was considered is one you create.
The Limits Of This Analysis
Several caveats matter. This is not tax advice; qualification is a question of fact turning on an organisation's documents and conduct, and an organisation with doubt should obtain advice. Everything is stated as verified in August 2026 and requires confirmation. The project findings described here relate to reviews conducted from 2009 over three years, and the commentary reporting them dates from 2013 and 2014; they are reported as historical and describe the population as it then was. We have deliberately not stated the filing thresholds for the information return, because our source was truncated at that point. We have not verified the statutory provision against the Act, and the text quoted comes from commentary reproducing it. The statement that income must never have been made available to members is reported as one source phrases it and we have not confirmed the temporal scope. The description of the consequences of failing to qualify is our own analysis from the structure of the provision rather than a verified assessment mechanism, and we have deliberately not described how any assessment would be computed. The reference to a CRA interpretive document suggesting a narrower approach is reported from commentary describing a document we did not access. Our scale calculations apply the reported figures to the reported population and assume the sample is representative, which CRA did not state. The distinction between quantum and attribution failure conditions, the reserve policy recommendation, the analysis of organisational drift, the board questions and the audit examination structure are our own. This article does not address subsection 149(5) and organisations whose main purpose is to provide dining, recreational or sporting facilities, the taxation of property income of certain member-based organisations, GST/HST as it applies to non-profit organisations and their public service body rebates, provincial incorporation and reporting, or the detailed comparison between registering as a charity and remaining a non-profit.
Frequently Asked Questions
Who confirmed that our organisation is exempt?
Can a non-profit earn a profit?
Are our reserves a problem?
How likely is it that we have a problem?
We are not a charity, so can we issue donation receipts?
Might we be claiming the wrong exemption?
References
- Blumbergs / CanadianCharityLaw.ca. The Non-Profit Organization Risk Identification Project Report, for the reproduction of paragraph 149(1)(l) including the requirement that the entity not be a charity within the meaning assigned by subsection 149.1(1), that it be organised and operated exclusively for social welfare, civic improvement, pleasure or recreation or any other purpose except profit, that no part of its income be payable to or otherwise available for the personal benefit of any proprietor, member or shareholder, and the exception where that person is a club, society or association whose primary purpose and function is the promotion of amateur athletics in Canada; on the findings being based on 1,337 reviews performed over a three year period; on the four categories of non-compliance the project identified and measured; on many entities not identifying themselves properly when filing, with 26 percent of those reviewed listing themselves as an "Other" type; on some reviewed organisations such as housing corporations, boards of trade and chambers of commerce likely qualifying under other paragraphs of subsection 149(1); and on a number of charities, some registered and some not, incorrectly filing as entities under this paragraph. Note: a Canadian charity law practice reporting on a CRA project report we did not access directly. canadiancharitylaw.ca
- Lexology / Thorsteinssons LLP. CRA Comments on Eligibility for Non-Profit Organization Status, on the requirement that an organisation seeking to qualify be organised and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; on CRA describing the project as an information gathering and education initiative intended to provide insights regarding how such organisations operate under the Act; on CRA stating the project was then only an information gathering initiative that would not result in reassessments in the short term except in egregious cases; on the intensified focus suggesting increased risk that organisations may have their status reviewed; and on a released CRA document suggesting a narrower approach to status than previously espoused. Note: professional commentary from 2013 describing an interpretive document we did not access. lexology.com
- Thorsteinssons LLP. CRA Comments on Eligibility for Non-Profit Organization Status, on the same project description and on the further requirement that the organisation must not pay or otherwise make available any part of its income for the personal benefit of any proprietor, member or shareholder. Note: a Canadian tax law firm publication from 2013. thor.ca
- Miller Thomson LLP. CRA Reports on its Non-Profit Organization Risk Identification Project, on CRA reporting approximately 30,000 organisations currently claiming the exemption; on the review of 1,337 randomly selected files starting in 2009; on the conclusion that a significant portion of incorporated organisations would fail to meet at least one of the requirements; on the finding that some organisations were registered charities erroneously filing non-profit returns or charities at common law not qualifying for the exemption; on CRA permitting the generation of profit on condition that it is incidental to the non-profit activities; on many organisations maintaining disproportionately large capital or operating reserves which could not be justified as incidental; on some organisations maintaining governing documents explicitly indicating purposes that were not exclusively non-profit; and on the four-part summary of the requirements including that the entity be in fact operated exclusively for the purpose for which it was organised and not distribute or make available for the personal benefit of a member any of its income, subject to certain narrow exceptions. Note: a Canadian law firm publication from 2014 reporting on a CRA project report we did not access directly. millerthomson.com
- Rotfleisch & Samulovitch PC. The Profit-Purpose Test for Non-Profit Tax-Exempt Status, on profit for income tax purposes being the difference between receipts in a period and the expenditures laid out to earn them; on the courts not having interpreted the paragraph so restrictively as to mean an entity cannot earn any profit; on it being well recognised that a non-profit organisation can undertake commercial or business activity to support its non-profit goals and not just to enrich members or proprietors; on profit being a problem where it is more than incidental or where earned from an activity or business not directly attributable to the entity's non-profit activities or purpose; on the definition requiring that the entity not be a charity in CRA's opinion, so that an entity organised for charitable aims cannot also and separately qualify; on the requirement that income has never been paid to, made payable to or otherwise made available for the personal benefit of any member; and on there being no single bright-line test, the question remaining one of fact in each case. Note: a Canadian tax law firm publication. taxpage.com
- WelcomeAide. Guide to the T1044 Non-Profit Organization Information Return, on the return being an information return rather than a tax return and the importance of that distinction; on organisations qualifying under the paragraph not paying income tax on their activities provided they operate exclusively for non-profit purposes with no part of income available for the personal benefit of members; on CRA nonetheless requiring certain organisations to report financial and operational information annually; on the return helping CRA monitor whether organisations continue to meet the criteria; on the possibility of voluntary filing where not required; on registered charities filing the charity information return rather than this one; and on an organisation that is not a registered charity being unable to issue tax receipts for donations. Note: a commercial publication; its description of the filing thresholds was truncated in the source available to us and we have not stated them. welcomeaide.com
This article is provided for general informational purposes and is not tax advice. Qualification under paragraph 149(1)(l) is a question of fact. The project findings reported here relate to reviews conducted from 2009 over three years and are presented as historical. Filing thresholds are deliberately not stated and must be taken from CRA guidance. The description of the consequences of failing to qualify is the authors' reasoning from the structure of the provision rather than a verified assessment mechanism.