12 December 2001 External T.I. 2001-0104095 - CAPITAL GAIN OF NPO

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Is a capital gain realized on the disposition of property by a non-profit organization taxable.

Position: No

Reasons:

Subsection 149(5) of the Act is not applicable. No tax is payable on the taxable income of the NPO. Income of the NPO includes capital gains.

XXXXXXXXXX 2001-010409
N. L. Storry
December 12, 2001

Dear XXXXXXXXXX:

Re: Non-Profit Organization

We are writing in response to your correspondence of September 26, 2001, wherein you requested our view regarding how a non-profit organization (the "Society") should treat a capital gain realized on the disposition of capital property for purposes of the Income Tax Act (the "Act").

You have described a situation in which a Society owns and operates a community centre that is located on XXXXXXXXXX. You have stated that the main purpose of the Society is to provide dining and recreational facilities for everyone in the XXXXXXXXXX community. Due to a growing lack of interest by the community in using the community centre, the Society has decided to dispose of its property and distribute the proceeds to other non-profit organizations.

Our Comments

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate Tax Services Office (the "TSO") of the Canada Customs & Revenue Agency (the "CCRA"). Since the review of such transactions falls within the responsibility of the TSO, it is the practice of the Income Tax Rulings Directorate not to comment on such transactions. In the case of a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. However, we can offer the following general comments.

Paragraph 149(1)(l) of the Act exempts from income tax a club, society or association (other than a charitable organization or foundation as defined in subsection 149.1(l)) organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, if no part of its income is payable to, or available for the personal benefit of any proprietor, member or shareholder.

However, subsection 149(5) of the Act can override this exemption and result in the taxation of certain income from property and taxable capital gains of a non-profit organization that has as its main purpose the provision of dining, recreational or sporting facilities for its members (i.e., a club). If a non-profit organization does not have as its main purpose the provision of dining, recreational or sporting facilities for its members, this provision will have no effect (i.e., it is not a club). Therefore, any property income or capital gain realized by a non-profit organization that is not a club on the disposition of the property would not be taxable. The CCRA's views on the taxation of income from property of a non-profit organization are contained in IT-83R3, Non-profit Organizations - Taxation of income from property. For your information, we have attached a copy of this Interpretation Bulletin.

We trust these comments will be of assistance.

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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