2014-0528701E5 Non-profit organization - Condominium

Principal Issues: Can a commercial condominium corporation qualify as a non-profit organization?

Position: Maybe.

Reasons: Provided it meets the criteria of 149(1)(l), it must be organized and operated for any purpose except profit and it cannot provide any part of its income to its members. If a profit does result it must be incidental to its non-profit purposes.

Author: Townsend, Ann
Section: 149(1)(l)

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                                                                                                                                                       2014-052870
                                                                                                                                                       A. Townsend

August 26, 2014

Dear XXXXXXXXXX:

Re:  Non-profit organization – Commercial Condominium Corporations

We are writing in response to your correspondence dated April 21, 2014, wherein you have requested our views on whether a commercial condominium corporation qualifies as a non-profit organization pursuant to paragraph 149(1)(l) of the Income Tax Act (the “Act”). In your situation, the commercial condominium corporation (the “Corporation”) manages the property and assets of a commercial building consisting of XXXXXXXXXX units that are individually owned by various businesses. The Corporation collects monthly contributions to cover common expenses and to fund a replacement reserve, as required by the condominium by-laws, to cover future major repairs to the building. In addition, you have stated that the Corporation does not have a profit purpose and no part of its income is made available for the benefit of its members.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

In general terms, paragraph 149(1)(l) of the Act provides that the taxable income of an organization is exempt from tax under Part I of the Act for a period throughout which the organization meets all of the following conditions:
*     it is a club, society or association;
*     it is not a charity;it is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; and
*     its income is not available for the personal benefit of a member or shareholder, unless the member or shareholder is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.

Accordingly, a condominium corporation, whether residential or commercial, is not exempt from tax because it is a condominium corporation; rather, it is exempt while it meets the above requirements. If a condominium corporation does not meet these requirements then it will be subject to tax on its taxable income for the period during which it did not qualify for the tax exemption.

It will be a question of fact to be determined with regard to the particular circumstances whether a commercial condominium corporation is carrying on a trade or business and if so, whether it will result in a finding that such an organization is not operated exclusively for non-profit purposes. Some characteristics that might indicate that an activity is a trade or business are as follows:

(a) it is a trade or business in the ordinary meaning, that is, it is operated in a normal commercial manner;
(b) its goods or services are not restricted to members and their guests;
c) it is operated on a profit basis rather than a cost recovery basis; or
(d) it is operated in competition with taxable entities carrying on the same trade or business.

Generally, the carrying on of a trade or business directly attributable to, or connected with, pursuing the non-profit goals and activities of an association will not cause it to be considered to be operated for profit purposes. However, whether an organization satisfies all of the conditions under paragraph 149(1)(l ) of the Act is a question of fact to be determined on a case-by-case basis according to the particular facts of each situation.

We trust that these comments will be of assistance.

Yours truly,

Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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