Impact Of Proposed Income Tax Act Amendments On Paragraph 149(1)(l) Organizations

On December 16, 2024, the federal government released its annual Fall Economic Statement ("FES") which provided Canadians with an update on the performance of the economy and the government's economic plan. The FES contained proposals to amend the Income Tax Act (Canada) (the "Tax Act") to change the current reporting obligations imposed on paragraph 149(1)(l) organizations ("NPOs").

It is unknown whether these provisions will come into effect with the prorogation of Parliament and the impending federal election.

NPOs and current reporting obligations

Typically, an NPO is a club, society or association that is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose, and it cannot be operated for the purpose of earning a profit. An NPO cannot be a registered charity under the Tax Act and cannot issue tax donation receipts. Generally, NPOs are not required to pay income tax; however, they may be required to pay property and capital gains taxes, as well as GST/HST.

Currently under the Tax Act, NPOs are required to file the following returns with the Canada Revenue Agency ("CRA"):

1. An annual T2 Corporation Income Tax Return, if the NPO is a corporation.
2. An Information Return (Form T1044), if the NPO meets at least one of the following requirements:
   1. Its total annual passive income exceeds $10,000.
   2. Its total assets exceed $200,000 in value.
   3. It was required to file an information return for the previous year.

The Form 1044 requires applicable NPOs to disclose:

• Its business or trust number.
• The amounts it received during the year and a high-level summary of the sources of the amounts (e.g., the amount the NPO earned from its membership dues, fees, and assessments).
• A statement of its assets and liabilities at the end of the year.
• A statement of the remuneration paid to its employees and officers, which must include a summary of any amounts paid to its members.
• A description of its activities, including whether the NPO carries on activities outside of Canada.
• The location of its books and records.

Proposed amendments regarding NPO reporting obligations

The FES proposed two amendments to the Tax Act that will impact NPOs. The first proposes to amend the Tax Act to require an NPO to file an annual return (Form 1044) if its total gross revenues are over $50,000.

The second amendment to the Tax Act would require any NPOs that are not required to file an annual return (Form 1044) to file a new "short-form" return that will require disclosure of the following information:

• Its business or trust number.
• The name of the organization and its mailing address.
• The names and addresses of the directors, officers, trustees or similar officials.
• A description of the organization's activities, including whether it conducts activities outside Canada.
• The organization's total assets and liabilities and annual revenues.
• Other prescribed information.

These new reporting requirements for NPOs align more closely with the reporting obligations currently in place for qualified donees (e.g., registered charities).

These amendments are intended to apply to the 2026 and subsequent taxation years, however, the FES is not currently law and, given the prorogation of Parliament, these amendments will need to be re-introduced to enact them into legislation. This is not likely to happen before the federal election in 2025.

Read the original article on GowlingWLG.com

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.