Not For Profit Corporation – Tax Issues

Apr 15

Not For Profit Corporation – Tax Issues

Canada Income Tax, Charity/Not-For-Profit Add comments

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to Ontario Not-For-Profit Corporations, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto business and tax lawyers registered on the website who can answer your questions.

Not-for-profit corporations are generally exempt from paying taxes (see legislation below) on any income and capital gains.

At the Ontario level, the Ontario Corporations Tax Act provides as follows:

PART II
INCOME TAX

Division E – Computation of Income Tax Payable

Exemptions

57. (1) Except as hereinafter provided, no tax is payable under this Part upon the taxable income of a corporation for a period when that corporation was,

Non-profit organizations

(b) a club, society or association that, in the opinion of the Minister, was not a charity within the meaning given to that expression by subsection 149.1 (1) of the Income Tax Act (Canada) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, which has not in the taxation year or in any previous taxation year distributed any part of its income to any proprietor, member or shareholder thereof, or appropriated any of its funds or property in any manner whatever to or for the benefit of any proprietor, member or shareholder thereof, unless the proprietor, member or shareholder was a club, society or association, the primary purpose and function of which was the promotion of amateur athletics in Canada.

…

PART III
CAPITAL TAX

Division A – Liability for Capital Tax

71. (1) Except as provided in subsections (3), 11 (15) and 66 (6), none of the following corporations are required to pay any tax otherwise payable under this Part:

1. A corporation referred to in subsection 57 (1), other than a corporation subject to the rules in subsection 149 (10) of the Income Tax Act (Canada) as made applicable by subsection 57 (7) of this Act.

So taken together, an Ontario not-for-profit corporation is generally exempt from paying income or capital gains tax at the Ontario level (remember: corporate entities in Ontario must file a tax return for both Ontario and Canada (i.e. federally).

At the federal level, not-for-profit corporations are generally exempt from paying income tax as well. The relevant provisions in the Canada Income Tax Act are as follows:

PART I INCOME TAX

DIVISION H EXEMPTIONS

Miscellaneous Exemptions

149. (1) No tax is payable under this Part on the taxable income of a person for a period when that person was

(l) a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) and that was organized and operated exclusively for social welfare, civic improvement, pleasure or recreation or for any other purpose except profit, no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder was a club, society or association the primary purpose and function of which was the promotion of amateur athletics in Canada;

Among other things, Ontario not-for-profit corporations need to file an Annual Information Return.