CANADA – CRA ISSUES ADVICE ON COMMERCIAL ACTIVITIES AND PROFITS OF NON-PROFIT ORGANIZATIONS

On November 5, 2009, the Canada Revenue Agency (CRA) released a technical interpretation (which is not publicly available) clarifying its position on various issues involving non-profit organizations (NPOs) defined under paragraph 149(1)(l) of the Income Tax Act, including whether NPOs can earn a profit or engage in commercial activities.  This is discussed in a short article by Theresa L. M. Mann in the Carters.ca Charity Law Update.  On the question of whether an NPO can compete against taxable entities, CRA responded, after referring to the BBM case (BBM Canada v. Canada (Minister of National Revenue), 2008 TCC 341), that the Income Tax Act does not prohibit an NPO from engaging in certain types of activities, including commercial activities, and therefore it is permissible for NPOs to compete against taxable entities.  In relation to the question of whether an NPO can earn a profit, CRA’s view is that an NPO can earn a profit, provided that it is unanticipated and incidental to carrying out the NPO’s exclusively not-for-profit purposes. CRA is of the view that an NPO cannot intentionally earn a profit, even though the profits are used to fund the activities of the organization, because it does not matter what the profit is used for.

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