In 2009, the CRA commenced a broad review of the
non-profit organization sector. You or your clients may
have received a CRA questionnaire asking that the NPO provide
information or documents in respect of its structure, activities,
bylaws, finances, and membership.
Generally, NPOs have been exempt from tax in Canada since the
introduction of the income tax in 1917. Under paragraph 149(1)(l)
of the Income Tax Act, no Part I tax is payable by a club, society
or association that is not a charity, is organized and operated for
any purpose other than profit, and no part of the income of which
is payable to any proprietor, member or shareholder. Currently,
there may be up to 80,000 NPOs in Canada that qualify for the
tax exemption under paragraph 149(1)(l). Prior to 2009, the CRA had
not undertaken a general review of this sector.
Recently, the CRA published a report and Q&A on the Non-Profit Organization Risk
Identification Project (NPORIP). In its report, the CRA stated the
review revealed that many NPOs would fail to meet at least one
of the requirements set out in paragraph 149(1)(l) of the Act:
The NPORIP was designed to provide the CRA with insight into
the way certain organizations—those seeking an exemption from
tax under paragraph 149(1)(l) of the Act—operate under the
income tax rules. The NPORIP has given the CRA a better
understanding of the issues these organizations face in complying
with the Act, and, in particular, has highlighted a number of
areas where the non-profit sector's understanding of the law
differs from that of the CRA. In addition, the NPORIP has revealed
a significant issue with compliance by these organizations in
several key areas.
The report provides only a high-level summary of its findings,
none of which are surprising:
The NPORIP identified a small number of cases where the NPO
was, in fact, a charity;
The NPORIP identified a small number of cases where the
NPO's governing documents (such as articles of incorporation,
letters patent, and by-laws) indicated that it was
not organized exclusively for a purpose other than
The NPORIP noted a variety of activities with apparent profit
motives carried out by a wide range of NPOs; and
The NPORIP identified a small number of cases where the NPO had
income payable or made available for the personal benefit of a
proprietor, member, or shareholder.
The report states that the CRA will seek to improve its
education and outreach in the NPO sector, so as to increase
awareness and compliance. Additionally, the CRA indicated that a
copy of the report had been provided to the Department of Finance
for the purpose of reviewing the NPO legislative framework.
We don't think the report is the final word on this issue
from either the CRA or the Department of Finance. In fact, in its
2014 federal budget, the Department of Finance stated:
... Budget 2014 announces the Government's intention to
review whether the income tax exemption for NPOs remains properly
targeted and whether sufficient transparency and accountability
provisions are in place. This review will not extend to registered
charities or registered Canadian amateur athletic associations. As
part of the review, the Government will release a consultation
paper for comment and will further consult with stakeholders
We expect that future legislative changes (i.e., increased
reporting requirements) may be forthcoming in the next few
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