On August 18, 2014, CRA issued a new document that deals with
the tax implications of a leasing arrangement between a condo
corporation (the "Corporation") and a company proposing
to install solar panels on several rooftops of the condominium
complex. CRA was asked to consider whether the leasing arrangement
would cause the Corporation to fail to meet the test to be a
"non-profit organization" pursuant to paragraph 149(1)(l)
of the Income Tax Act (Canada) (the
Generally speaking, a condo corporation that meets the criteria
in the definition of "non-profit organization" in the
Act will be exempt from tax for the period of time during
which it meets the criteria. To meet the criteria, a condo
be a club, society, or association;
not be a charity;
be organized and operated exclusively for social welfare, civic
improvement, pleasure, recreation, or any other purpose
except profit; and
not make its income available for the personal benefit
of a member or shareholder [...].
Based on these criteria, issues that could arise from the
proposed solar panel leasing arrangement include whether the
activity has a profit purpose and whether the surplus funds that
are generated from the activity are made available for the personal
benefit of members of the Corporation. In past editions of our
Charities and Not-for-Profit Newsletter [
September 2013 and
February 2012], our group has written about whether certain
other revenue generating activities in which condo corporations
often participate are evidence of a profit purpose, which will
typically disqualify the particular corporation from being
considered to be a non-profit organization for purposes of the
Act. These are just some of the compliance issues that CRA
has raised in the condo corporation context.
In this particular instance, only some of the terms of the
agreement that the parties were proposing to enter into are
described in the CRA document. As a result, it is impossible to say
for certain whether the activity in question would cause the
Corporation to fail to meet the test in the Act for a
non-profit organization. However, CRA did express concern over the
fact that the income from the leasing arrangement might be
considered to be made available for the personal benefit of members
of the Corporation since the parties to the agreement were
contemplating that such amounts might be used to freeze increases
in the annual reserve fund of the Corporation (which is used for
the repair and replacement of capital components of common areas)
and/or to offset unit owners' monthly maintenance fees. CRA was
also concerned as to whether the leasing arrangement was
sufficiently connected to the Corporation's not-for-profit
When contemplating certain commercial activities, it may be
helpful for condo corporations to consider these comments made
by CRA, in addition to CRA's other published comments. These
comments should also be a reminder that condo corporations must
meet the test in paragraph 149(1)(l) of the Act in order
to be exempt from income tax and that CRA will not consider them to
be exempt from tax simply "because" they are condo
corporations, to use the words of CRA.
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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