2014-0558101E5 Union Revenue Activities

Principal Issues: Whether profit-generating activities would jeopardize the union's tax exempt status.

Position: Likely no.

Reasons: Paragraph 149(1)(k) of the Act would not, in and by itself, restrict profit-generating activities conducted by a labour organization.

Author: Meers, Rob
Section: 149(1)(k)

XXXXXXXXXX
                                                                                                                                                2014-055810
                                                                                                                                                 R. Meers
                                                                                                                                                 (613) 957-2100
March 3, 2015

Dear XXXXXXXXXX:

Re: Union Revenue Activities

This is in response to your letter dated November 13, 2014, inquiring as to the tax implications of certain profit-generating activities of a labour union. We also acknowledge the additional information provided during our phone conversations the last of which was December 19, 2014 (Meers/XXXXXXXXXX). In this letter, unless otherwise expressly stated, all statutory references are to the provisions of the Income Tax Act (the “Act”).

In particular, you have concerns with whether the income earned by a union in respect of commission fees, which represent a portion of the premiums paid by the members to an insurance provider for group life insurance premiums, could indicate that the union has a “profit purpose”. In addition, you are concerned that the members may then benefit from this income if it is made available to them.

This technical interpretation provides general comments about the provisions of the Act. 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 particular transactions 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 70-6R6, Advance Income Tax Rulings and Technical Interpretations. Although we cannot comment on your specific situation, we are able to provide the following general comments, which may be of assistance.

Your initial submission addressed the issue from the perspective of the union as a non-profit organization. In general terms, paragraph 149(1)(l) provides that the taxable income of an organization is exempt from tax under Part I 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.

While we would share your concerns with respect to the profit-generating activities of the union as well as members benefitting from its income if the union were a 149(1)( l) entity, as discussed with you by phone, it is more likely that the union is exempt from Part I tax by virtue of paragraph 149(1)(k). Paragraph 149(1)(k) exempts from Part I tax all taxable income of a labour organization or society. In our view, if a particular entity is a labour organization, paragraph 149(1)(k) would not, in and by itself, restrict profit-generating activities conducted by a labour organization unless the activities were such that the organization was no longer a labour organization. Furthermore, unlike paragraph 149(1)(l), there is no requirement in paragraph 149(1)(k) that members not benefit from the income of the organization.

However, it is our view that the profit-generating activities cannot be the principal activity of the 149(1)(k) entity and must be undertaken for the purpose of achieving its objective of representing employees to ensure favourable working conditions.

For purposes of section 149, proposed subsection 149.01(1) defines a labour organization to include a labour society and any organization formed for purposes which include the regulation of relations between employers and employees, and includes a duly organized group or federation, congress, labour council, joint council, conference, general committee or joint board of such organizations.

It is a question of fact whether a particular taxpayer qualifies under paragraph 149(1)(k) as a labour organization for income tax purposes.

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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