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
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.
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