Over the past three years, CRA conducted an NPO Risk Identification Project. This project involved audits of a broad range of non-profit organizations (NPOs) to determine their compliance with the existing tax requirements. It was expected that a report on the results of this review would be released early this year. To date, no report has been published.
The Budget, however, announces that the Government will review the scope of the current tax exemption for NPOs. NPOs constitute a broad category of tax exempt organization under the Tax Act. In order to qualify as an NPO, an organization must be organized and operated for a purpose other than profit and must not make any income available to its members. It must also not be a charity. NPOs include such varied groups as professional associations, recreational clubs, civic improvement organizations, cultural groups, housing corporations, advocacy groups and trade associations.
The Budget document indicates that concerns have been raised that some organizations claiming the NPO tax exemption may be earning profits that are not incidental to carrying out the organization's non-profit purposes, making income available for the personal benefit of members or maintaining disproportionately large reserves. There is also a concern that NPOs are subject to insufficient transparency in their operations, given their limited reporting requirements. Frankly, we believe that many of these concerns are overstated.
The Government intends to review whether the income tax exemption for NPOs remains properly targeted and whether sufficient transparency and accountability provisions are in place. It confirms that this review will not extend to registered charities or RCAAAs. As part of the review, the Government will release a Consultation Paper for comment and will further consult with stakeholders as appropriate.
NPOs should therefore watch both for the Report from the NPO Risk Identification Project as well as the Consultation Paper from the Government. It will be important that organizations provide their input to ensure that the Government has a full understanding of the sector and its needs, and to ensure that any changes to the rules (which appear likely on the basis of the Government's comments) will take these issues into account.
We will continue to keep our readers apprised as this consultation process progresses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
